Asian stocks slumped after Jerome Powell said the Federal Reserve would raise interest rates more than previously anticipated, sapping risk appetite and sending global equities to their worst day in almost a month.
(Bloomberg) — Asian stocks slumped after Jerome Powell said the Federal Reserve would raise interest rates more than previously anticipated, sapping risk appetite and sending global equities to their worst day in almost a month.
Benchmark equity gauges in China, South Korea and Australia fell in the wake of the S&P 500’s 2.5% drop. Declines in Hong Kong and on the mainland came after an affirmation of the government’s Covid-Zero stance.
The Fed raised rates 75 basis points for the fourth time in a row, bringing the top of its target range to 4%, the highest level since 2008. Traders immediately raised the market-implied peak in interest rates for next year.
“This was a big reality check for the markets,” said Anastasia Amoroso, chief investment strategist for iCapital, in an interview with Bloomberg TV. Investors hoped “the beginning of the end of the tightening cycle,” was near but “cannot draw that conclusion now,” she said.
“Factoring in the bond market’s assessment, markets are becoming increasingly convinced that the path towards the terminal rate will include a recession,” said Quincy Krosby, chief global strategist at LPL Financial.
Megacap tech bore the brunt of the selling, with giants like Apple Inc. and Tesla Inc. tumbling more than 3.5%. As Asian markets opened, Hong Kong-listed China tech stocks were among the biggest decliners.
Two-year US yields — which are more sensitive to imminent Fed moves — reversed course and pushed higher after Powell spoke. There was no cash trading of Treasuries in Asia with Japan on holiday.
Australian and New Zealand bonds tumbled early Thursday in the wake of the Fed meeting. Australia’s policy-sensitive three-year yield jumped more than 10 basis points.
The dollar fluctuated, losing ground against many of its Group-of-10 counterparts while an index of emerging-market currencies declined.
Wheat prices fell after Russia agreed to resume a deal allowing safe passage of Ukrainian crop exports. Oil fell after Powell’s comments on interest rates overshadowed tightening supply.
“Every time the market gets a little bit of dovish hope, it gets smacked on the nose with a rolled up newspaper,” said Scott Rundell, chief investment officer at Mutual Ltd. “There’s a lot of volatility still ahead.”
Key events this week:
- Bank of England rate decision, Thursday
- US factory orders, durable goods, trade, initial jobless claims, ISM services index, Thursday
- ECB President Christine Lagarde speaks, Thursday
- US nonfarm payrolls, unemployment, Friday
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 rose 0.1% as of 11:49 a.m. Tokyo time. The S&P 500 fell 2.5%
- Nasdaq 100 futures climbed 0.2%. The Nasdaq 100 fell 3.4%
- Australia’s S&P/ASX 200 Index fell 2%
- The Hang Seng Index fell 2.3%
- The Shanghai Composite Index fell 0.1%
- Euro Stoxx 50 futures fell 0.8%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $0.9829
- The Japanese yen rose 0.4% to 147.37 per dollar
- The offshore yuan rose 0.3% to 7.3215 per dollar
Cryptocurrencies
- Bitcoin rose 0.6% to $20,298.7
- Ether rose 2.2% to $1,544.47
Bonds
- The yield on 10-year Treasuries advanced six basis points to 4.10%
- Australia’s 10-year yield advanced 10 basis points to 3.91%
Commodities
- West Texas Intermediate crude fell 0.5% to $89.51 a barrel
- Spot gold rose 0.1% to $1,637.43 an ounce
–With assistance from Georgina Mckay and Matthew Burgess.
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