Asian stocks endured another turbulent day on Thursday as investors reacted to the US Fed’s pessimistic outlook for inflation and the likelihood of more hefty rate hikes.
Hong Kong stocks hit a near 11-year low and Japan shares slipped to a two-month low point, while China markets saw their losses capped by some bargain-buying.
Japanese shares closed at their lowest since early July with investors nervous over the US Federal Reserve’s hawkish projections and the Bank of Japan’s insistence on maintaining its ultra-easy monetary policy.
The median of Fed officials’ own outlook has US rates at 4.4% by year’s end – 100 bps higher than their June projection – and even higher, at 4.6%, by the end of 2023.
“No one knows whether this process will lead to a recession or if so how significant that recession would be,” Fed chair Jerome Powell told reporters after the rate hike announcement.
The Nikkei 225 index opened down 0.95% and fell through the 27,000-mark for the first time since July 19. It later recovered slightly and ended down 0.58% at 27,153.83. The broader Topix fell 0.24%.
The Nikkei’s slide tracked broad losses on Wall Street after the Fed delivered a widely expected 75-basis-point rate increase and signalled there would be no let-up in its approach to tackling inflation, forecasting more substantial hikes on its “dot plot” chart.
“The rate hike was as expected but the upward revision of the dot plot was considered hawkish and made some think about the prospect of a long period of monetary tightening,” Tomoichiro Kubota of Matsui Securities said.
The yen briefly reached a new 24-year low of 145.405 to the dollar after the BOJ’s announcement. It later shot up after officials intervened in the foreign exchange market for the first time since 1998 to bolster the battered currency.
The dollar fell over 1% to 142.3 yen, after trading earlier at more than 1% higher against the Japanese currency. It was last down 0.42% at 143.4.
Meanwhile, Asian stocks, measured by MSCI’s broadest index of Asia shares outside Japan, dropped 1.4% to a two-year low.
Hang Seng Tech Index Dips
Hong Kong stocks touched their lowest level since December, 2011, with risk appetite dampened, but bargain hunting helped Chinese mainland markets limit their losses.
Stocks across growth and other vulnerable sectors fell after Hong Kong’s central bank hiked its rate in line with the Fed.
The Hang Seng Tech Index lost 2.1% to hit a six-month low. Electric car makers including Xpeng, Nio and Li Auto also fell sharply.
The main Hang Seng Index dropped 1.6%, or 296.67 points, to 18,147.95.
China shares were aided by signs of bargain hunting ahead of next month’s politically key Communist Party Congress.
The Shanghai Composite Index dipped 0.3%, or 8.27 points, to 3,108.91, while the Shenzhen Composite Index on China’s second exchange dropped 0.6%, or 12.46 points, to 1,991.85.
Elsewhere across the region, currencies and stocks were under pressure after the Fed’s gloomy forecasts and the Taiwan Stock Exchange declined 1.9% to its lowest in more than two months.
Indian stocks dropped with Mumbai’s signature Nifty 50 index down 0.24%, or 42.20 points, at 17,676.15.
Rate Hikes in Indonesia, Philippines, Switzerland and Norway
Globally, the dollar surged to a fresh two-decade high and stocks slid with investors unsettled by the Fed’s aggressive outlook for US interest rates and braced for more hikes across Europe later in the day.
The euro fell to a 20-year low in the Asia session and sterling to its lowest since 1985. Russia’s move to mobilise reservists for war in Ukraine added to the sombre mood.
Pan-European futures were fell 1.9% with FTSE futures down 0.9%. S&P 500 futures also slipped 0.5%.
Rates were later hiked by 50 basis points by central banks in Indonesia, the Philippines and Norway, and 75 basis points in Switzerland.
And traders saw an 80% chance of a 75 bp hike from the Bank of England.
The dollar’s rise has sent emerging market currencies tumbling and punished cryptocurrencies and commodities. Spot gold was down 0.7% on Thursday and near a two-year low at $1,661 an ounce. Bitcoin was just below $19,000.
Brent crude steadied at $90.33 a barrel after sliding on demand worries.
Tokyo – Nikkei 225 < DOWN 0.6% at 27,153.83 (close)
Hong Kong – Hang Seng Index < DOWN 1.6% at 18,147.95 (close)
Shanghai – Composite < DOWN 0.3% at 3,108.91 (close)
London – FTSE 100 < DOWN 0.2% at 7,222.14 (0935 BST)
New York – Dow < DOWN 1.7% at 30,183.78 (Wednesday close)
- Reuters with additional editing by Sean O’Meara