Asian markets track Wall St losses after US Fed rate hike

Massive selldowns in Asian markets have followed Wall Street’s losses overnight, reflecting widespread investor concerns around the US central bank’s third straight big hike.

Wall St stocks fell in response to the latest rate hike. Picture: Scott Olson/Getty Images

Equities in Hong Kong and Japan are trading lower amid sharp selldowns after Wall Street closed in the red on the US central bank’s third straight rate hike of 0.75 per cent.

The Australian sharemarket is expected to follow suit on Friday when trading resumes after Thursday’s memorial public holiday.

In Japan, the focus is on its central bank governor Haruhiko Kuroda, who is expected to change his “language on inflation” and announce its rates decision later on Thursday.

The benchmark Nikkei 225 index was down 0.9 per cent to 27,075.80 in early trading, while the broader Topix index slipped 0.8 per cent to 1905.86.

“For the BoJ, we think a policy shift is coming … but if so, then more likely out of the end-October meeting,” senior strategist Ray Attrill of National Australia Bank said in a note.

The BoJ may make a slight change in “the language on inflation” in the upcoming statement, for example saying recent price increases are no longer seen as temporary, he added.

Later on Thursday, the Bank of England’s possible big interest rate hike is likely to impact on global sharemarkets.

The British central bank’s meeting had been postponed from last week following the death of Queen Elizabeth II.

Most economists forecast the BoE’s key rate will increase by 0.50 percentage points to 2.25 per cent, repeating its August increase that had been the biggest rise since 1995.

Meanwhile, Hong Kong stocks also sank in early trading.

The Hang Seng index tumbled 1.9 per cent to 18,080.93 with the Shanghai Composite Index down 0.6 per cent to 3098.77, and the Shenzhen Composite Index on China’s second exchange falling 0.7 per cent to 1989.70.

US stocks finished sharply lower after the Federal Reserve said it would raise interest rates again and signalled the need for further rate increases in the months ahead.

Trading was volatile with stocks on a rollercoaster before tumbling in the final hour before close.

The broad S&P 500 index fell 1.7 per cent to 3789.93.

The blue-chip Dow Jones Industrial Average shed 1.7 per cent to 30183.78 and the technology-heavy Nasdaq Composite fell 1.8 per cent to 11,220.19.

The Fed’s decision to raise the federal-funds rate by 0.75 percentage point will bring the central bank’s benchmark rate to a range of 3 per cent to 3.25 per cent, its highest level since 2008.

Based on the Fed’s so-called dot plot, or projection of where interest rates may be in the coming years, investors now expect the central bank to ultimately raise rates above 4 per cent in order to tame inflation.

That is far above what most had anticipated just a few months ago – and likely to keep pressure on markets, which have already been pummelled this year by tightening monetary policy and high inflation.

One silver lining for investors was that the Fed didn’t raise rates by a full percentage point, a scenario that an increasing share of traders had feared would play out heading into the meeting.

Still, Mr Powell’s comments suggested the central bank doesn’t see itself winding down its rate increases anytime soon.

“Inflation is still too high and is coming down too slowly for the Fed and other central banks to take their foot off the gas,” said Altaf Kassam, head of investment strategy for Europe, the Middle East and Africa at State Street Global Advisors.

“We are moving, if not permanently then at least in the medium term, into an inflationary environment that will need higher rates for longer.”

In the meantime, stock moves to the upside will complicate the Fed’s job of reining in inflation, one investor said.

“Make no mistake … the Fed wants lower stock prices to get inflation to 2 per cent,” said Bill Zox, portfolio manager for Brandywine Global.

Bonds ended mixed following the Fed’s rate decision.

The yield on the benchmark 10-year Treasury note, which initially spiked, wound up settling lower at 3.51 per cent. The yield on the two-year Treasury note, which tends to move with traders’ expectations for monetary policy, rose to 3.99 per cent, marking a fresh multi-year high.

Bond yields and prices move in opposite directions.

Prices for Brent crude-oil soared after Russian President Vladimir Putin ordered the mobilisation of Russia’s reserve forces and threatened a nuclear response following major setbacks for his armed forces in Ukraine.

But Brent crude ended the day lower, losing 0.9 per cent to $US89.83. WTI was also lower at $US83.04.

The US dollar rose as did the price of spot gold.

The most actively traded gold futures contract added 1 per cent to $US1,687.70 a troy ounce in after-hours trading after finishing the session up 0.3 per cent at $US1,664.60 a troy ounce.

Mr Putin’s comments raised fears that a further tightening of global energy supplies to Europe could be in store after Moscow has already steadily curtailed its supplies to Europe. Meanwhile, his comments that Russia will use all the instruments at its disposal to counter what he sees as threats to Russia’s integrity mark the starkest yet that he could use nuclear weapons.

“For Putin, the longer the conflict drags on and it doesn’t feel like there is a clear victory for Russia, the more it becomes a threat to Putin himself,” said State Street’s Mr Kassam.

“It is obviously worrying if Putin is going to go all out.”

– With Agencies