The dollar saw some of its biggest gains since March last year and Asian markets fell after a hawkish US Fed left stocks and bonds bruised
World equities were heading for their biggest fall in weeks on Thursday after the US Federal Reserve startled investors by signalling it might raise interest rates at a much faster pace than predicted.
The news sent bond yields and the dollar up sharply as the greenback saw its strongest one-day rise in 15 months after the Fed meeting.
Overall, Asia-Pacific shares were closing down around 0.7%, while Wall Street futures pointed to a modest 0.5% drop.
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Hong Kong stocks finished on a positive note, reversing early losses, with the Hang Seng Index rising 0.43% or 121.75 points, to 28,558.59.
The benchmark Shanghai Composite Index added 0.21%, or 7.28 points, to 3,525.60, while the Shenzhen Composite Index on China’s second exchange jumped 1.16%, or 26.98 points, to 2,359.40.
But Tokyo stocks closed down as investors locked in profits after the Fed’s forecast shift and the benchmark Nikkei 225 index fell 0.93%, or 272.68 points, to 29,018.33, while the broader Topix index slipped 0.62%, or 12.29 points, to 1,963.57.
The Fed also signalled it would now be considering whether to taper its $120 billion-a-month asset purchase programme meeting by meeting and downgraded the risk from the pandemic given progress with vaccinations.
CONFERENCE SIGNS
JPMorgan analysts noted Fed Chair Jerome Powell had not been as aggressive in his media conference. He had described it as a “talking about talking about meeting,” a reference to his protestations earlier this year that the Fed was not even “talking about talking about” tighter policy.
“It appears that faster progress toward reopening and higher inflation surprises revealed some hawks on the FOMC, but we suspect that leadership is predominantly anchored at zero or one hike in 2023,” JPMorgan said, sticking with a prediction for tapering to start early next year.
Markets moved quickly to price in the risk of earlier action and Fed fund futures shifted to imply a first hike by the end of 2022. Yields on 10-year bonds shot up almost nine basis points to as high as 1.57%.
DOLLAR BREAKOUT
The dollar also broke out of recent tight ranges. It had risen 0.9% on Wednesday against a basket of currencies for its biggest gain since March last year and added another 0.5% in morning European trade to set a two-month high at 91.819.
Elsewhere, the rise in bond yields and the dollar were a double blow for non-yielding gold which was down at $1,810 an ounce after sliding 2.5% overnight.
Oil prices were insulated by the prospect of stronger world demand and still tight supply, with Brent reaching its highest since April 2019 before running into profit taking and headwinds from the sharply higher dollar.
Brent was last off 0.3% at $74.15 a barrel, while U.S. crude lost 0.2% as well to trade at $71.98.
MARKETS
Tokyo – Nikkei 225: DOWN 0.9% at 29,018.33 (close)
Hong Kong – Hang Seng Index: UP 0.4% at 28,558.59 (close)
Shanghai – Composite: UP 0.2% at 3,525.60 (close)
New York – Dow: DOWN 0.8% at 34,033.67 (close)
- Reporting by Reuters & AFP
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