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Asian markets lower after hawkish Fed, fresh trade war fears
HONG KONG, June 14, 2018 (BSS/AFP) – Asian markets fell Thursday after the
Federal Reserve hiked interest rates and signalled a more hawkish tone for
future moves, while US President Donald Trump stoked trade war fears by
suggesting he will hit China with fresh tariffs.
After a keenly watched meeting, the US central bank lifted borrowing
costs, as expected, but indicated another two this year and four in 2019 as
the world’s top economy continues to improve and inflation picks up.
While the Fed had earlier been tipped to announce three increases each
year, there had been growing speculation that it would have to be more
aggressive to keep a lid on prices and prevent the economy from boiling over.
Policymakers have been forced to change tack to take account of Trump’s
huge tax cuts in December, which have already started to take effect.
But in a statement they stressed that rising rates were unlikely to hit
the economy, which Fed chief Jerome Powell said was “in great shape”.
All three main indexes on Wall Street ended down on the prospect of higher
borrowing costs, which would affect investment, while the dollar was slightly
weaker as traders had largely priced in further hikes.
And Asian markets struggled, with signs of a slowdown in Chinese growth
also denting sentiment after data showed factor output, retail sales and
investment all missing forecasts.
Hong Kong was down 1.2 percent in the afternoon. The city’s de facto
central bank lifted its own interest rates to keep in line with the Fed. The
HKMA and US central bank’s monetary policies are linked owing to their
currency peg.
Shanghai lost 0.2 percent, with analysts saying a People’s Bank of China
decision not to follow the Fed’s rate rise indicated officials may be
changing policy to combat slowing growth.
– ‘A little bit upset’ –
The central bank usually tracks US hikes by lifting the amount it charges
to lend to banks in order to prevent a flood of cash from the mainland into
dollar investments.
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“China’s new leadership was greeted by a much more challenging environment
in 2018,” said Ting Lu, chief China economist at Nomura investment bank,
adding Beijing would likely lower rates and pick up spending in coming months
to shore up growth.
Tokyo ended one percent lower, Seoul fell 1.8 percent, Sydney dipped 0.1
percent and Singapore was off 1.1 percent.
Eyes now turn to the end of the European Central Bank’s meeting later in
the day, with the future of its crisis-era stimulus on the agenda.
Trade war fears returned to the fore after Trump warned Beijing of
possible fresh tariffs.
“China could be a little bit upset about trade because we are very
strongly clamping down on trade,” he said in an interview aired on Fox News
Wednesday.
His comments come as he prepares to make a decision Friday on whether to
impose measures on billions of dollars worth of goods from China. “You will
see over the next couple of weeks. They understand what we are doing,” he
said.
China has pledged any tariffs will void progress made in recent talks and
has drawn up its own list of US targets.
The comments are the latest in Trump’s ongoing disputes with the US’s
partners and come less than a week after he left a Group of Seven summit in
tatters over trade differences.
“Trade is going to be far more unpredictable going forward and so far
markets keep trying to shrug it off as if it isn’t going to happen,” Michael
Every, head of financial markets research at Rabobank Group, told Bloomberg
Television.
“When it finally happens maybe the markets will wake up and realise, wow,
this is actually happening.”
In early European trade London and Frankfurt each fell 0.6 percent, while
Paris was 0.5 percent off.
– Key figures around 0720 GMT –
Tokyo – Nikkei 225: DOWN 1.0 percent at 22,738.61 (close)
Hong Kong – Hang Seng: DOWN 1.2 percent at 30,370.51
Shanghai – Composite: DOWN 0.2 percent at 3,044.16 (close)
London – FTSE 100: DOWN 0.6 percent at 7,661.33
Euro/dollar: UP at $1.1818 from $1.1786 at 2100 GMT
Pound/dollar: UP at $1.3409 from $1.3367
Dollar/yen: DOWN 110.04 yen from 110.37 yen
Oil – West Texas Intermediate: DOWN one cent at $66.63 per barrel
Oil – Brent Crude: DOWN 26 cents at $76.48 per barrel
New York – Dow Jones: DOWN 0.5 percent at 25,201.20 (close)
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