HONG KONG, Dec 20, 2018 (BSS/AFP) – Asian markets slumped Thursday,
tracking big losses on Wall Street after the Fed defied unprecedented
pressure from Donald Trump and raised interest rates, sparking fears the move
could choke economic growth.
The Dow slid to its lowest level of 2018 after the US Federal Reserve, as
expected, raised rates for the fourth time this year.
But markets reacted badly after Fed Chairman Jerome Powell said the bank
would not shift course on reducing its balance sheet.
Investors had hoped for a less aggressive approach amid concern that global
growth is slowing.
“The Fed’s been a huge friend of the stock market and they are now a little
bit of an enemy and (will) probably become worse of an enemy before this is
all over,” Bob Doll, Nuveen chief equity strategist and senior portfolio
manager, told Bloomberg.
The Fed now projects only two interest rate increases, down from three
previously, as it trimmed its forecast for US growth and inflation.
Stephen Innes, head of Asia-Pacific trade at OANDA, said the “Fed delivered
a dovish hike, but clearly, there wasn’t enough affirmation in the statement
that the Fed was close to pausing or ending their interest rate hike cycle
sooner than expected”.
Some analysts were puzzled by investors’ reaction.
Ray Attrill, strategist at National Australia Bank, said the post-Fed
sentiment was “a bit surprising” given the bank stressed a “gradual” pace of
rate hikes next year.
But the spillover from the rate hike continued to rattle investors in Asia
Thursday, deepening concern over global growth prospects which are already
facing headwinds from President Trump’s trade war, a slowing Chinese economy,
and potential turmoil from Britain quitting the European Union.
Efforts to resolve the trade war between the world’s top two economies are
ongoing, with US Treasury Secretary Steven Mnuchin saying Washington and
Beijing were planning to hold meetings in January to negotiate a broader
trade truce.
– Trade war truce –
Tokyo led the downward charge in Asian stocks Thursday, sliding 1.7
percent. The Nikkei was little changed after the Bank of Japan left rates
unchanged, as the threat of trade protectionism and tax rises cast a pall
over the economy.
Shanghai was down 0.5 percent, even after the People’s Bank of China said
it would supply lower-cost liquidity for up to three years to banks willing
to lend more to small companies, as policy makers aim to shore up the
flagging economy.
Hong Kong, Seoul and Sydney were also lower.
Wednesday’s quarter-point hike in the US came after Trump repeatedly
demanded on Twitter the bank hold rates, in what was regarded as the most
public assault on the Fed’s independence in decades.
The US president has cited the dollar’s strength as a reason the Fed should
stop raising interest rates because higher rates tend to attract foreign
capital to a currency.
The rate announcement boosted the dollar, which rose slightly against the
yen Thursday.
On commodities markets, Brent crude slid Thursday, the latest twist in a
tumultuous week, trimming gains from Wednesday’s rally.
“Oil prices reacted poorly to the Fed’s forward guidance which suggests the
Fed remains on ‘auto pilot'”, Innes said.
Earlier Wednesday, European bourses pushed higher, led by Milan, which
advanced 1.6 percent after the EU and Italy called a truce in their bitter
row over Rome’s disputed 2019 budget, as the populist government agreed to
put off signature reforms.
– Key figures around 0300 GMT – Tokyo – Nikkei 225: DOWN 1.7 percent at
20,631.43 (break)
Hong Kong – Hang Seng: DOWN 0.5 percent at 25,748.71
Shanghai – Composite: DOWN 0.5 percent at 2,537.16
Euro/dollar: UP at $1.1380 from $1.1377
Dollar/yen: UP at 112.49 yen from 112.43 yen
Pound/dollar: UP at $1.2620 from $1.2616 at 2200 GMT Oil – West Texas
Intermediate: UP 22 cents at $47.42 per barrel ($47.20)
Oil – Brent Crude: DOWN 64 cents at $56.60 per barrel
New York – Dow: DOWN 1.5 percent at 23,323.66 (close)
London – FTSE 100: UP 1.0 percent at 6,765.94 points (close)