Asia Stocks Slump on Fed Rate Hike Warnings, Recession Fears

 

Asian stocks retreated on Thursday as optimism that the US Federal Reserve might be about to begin reining in its aggressive rate hikes push faded, despite signs inflation was cooling.

Share indexes across the region sagged, tracking declines on Wall Street, after Fed chiefs projected higher interest rates for a longer period as traders continued to fret that tighter policy will trigger a downturn.

Tokyo shares closed lower after the Fed signalled there will be more rate hikes next year even as the economy slips towards a possible recession, arguing that a higher cost would be paid if the US central bank does not get a firmer grip on inflation.

 

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Japan also recorded a trade deficit of 2.03 trillion yen ($15 billion) in November, the 16th consecutive monthly deficit led by soaring fuel costs, according to data released by the finance ministry before the opening bell.

The benchmark Nikkei 225 index dropped 0.37%, or 104.51 points to end at 28,051.70. The broader Topix index fell 0.18%, or 3.52 points, to 1,973.90.

“Investors had widely anticipated the Fed would hike key policy rates by half a percentage point,” Stephen Innes of SPI Asset Management said in a note.

“But they are still trying to figure out the endgame and how far interest rates will rise next year.”

Hong Kong’s Hang Seng tumbled and mainland Chinese blue chips declined as China’s Covid woes intensified.

Beijing has rolled back many of its strict and economically painful Covid curbs, following an unprecedented wave of social unrest.

But cases are now soaring and businesses have been forced to close again as the authorities struggle to contain the surge.

The Shanghai Composite Index dipped 0.25%, or 7.88 points, to 3,168.65, while the Shenzhen Composite Index on China’s second exchange gained 0.31%, or 6.31 points, to 2,054.91.

The Hang Seng Index, though, dropped 1.55%, or 304.86 points, to 19,368.59.

 

US Treasury Yields Depressed

Elsewhere across the region, South Korea’s Kospi dropped 0.92% and Australia’s stock benchmark fell 0.4%.

Indian stocks dipped with Mumbai’s signature Nifty 50 index down 1.32%, or 245.40 points, at 18,414.90.

MSCI’s broadest index of Asia-Pacific shares slumped 0.91%, after climbing as high as 160.37 in the previous session for the first time since late August.

Globally, US Treasury yields remained depressed and the curve deeply inverted as traders continued to fret that tighter policy will trigger a recession. The US dollar languished near a six-month low against major peers.

Crude oil, though, continued to firm after bouncing off last week’s nearly one-year low, with OPEC and the IEA forecasting a recovery in demand next year as China’s economy reopens.

Overnight, the US S&P 500 lost 0.61%, although e-Mini futures pointed to a slight 0.06% bounce for Thursday’s reopen.

 

Investors Wait on ECB, Bank of England

The downturns followed the Fed’s decision to raise the benchmark rate by an as-expected half a percentage point – down from recent 75 basis point increases – but projected a terminal rate above 5%, a level not seen since a steep economic downturn in 2007.

“This is a very hawkish signal from the Fed,” TD Securities analysts wrote in a client note.

“The Fed essentially acknowledged at this meeting that inflation is likely to remain stickier than initially expected, necessitating a more restrictive policy stance, which will end up pushing the US economy in a recession in 2023,” they added.

The 10-year Treasury yield slipped back below 3.5% in Tokyo trading, with the two-year yield also edging lower to under 4.24%.

The dollar index – which measures the greenback against six top peers, including the euro and sterling – held close to the overnight low of 103.44, a level not seen since June 16. It last stood 0.09% stronger at 103.75.

Investors’ eyes will now be trained on policy decisions from the European Central Bank and Bank of England later in the global day, as officials there also stood ready to hike rates again against the rising risks of fomenting recessions.

 

Key figures

Tokyo – Nikkei 225 < DOWN 0.37% at 28,051.70 (close)

Hong Kong – Hang Seng Index < DOWN 1.55% at 19,368.59 (close)

Shanghai – Composite < DOWN 0.25% at 3,168.65 (close)

London – FTSE 100 < DOWN 0.80% at 7,436.27 (0935 GMT)

New York – Dow < DOWN 0.42% at 33,966.35 (Wednesday close)

 

• Reuters with additional editing by Sean O’Meara

 

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