Share market declines deepened amid diminishing odds of a soft economic landing after the Federal Reserve hiked interest rates by 75 basis points and signaled further aggressive tightening.
Equities fell in China, Japan and South Korea after the S&P 500’s slide overnight took it more than 20% below the record high in January. Chinese tech stocks led declines as Hong Kong’s benchmark gauge headed for the lowest close since 2011. US and European futures dropped.
A dollar index traded near a record high and the yen weakened through 145 versus the greenback after the Bank of Japan maintained its ultra-loose monetary policy. Japan’s top currency official said “stealth intervention” was an option to address the depreciation, which has the yen trading around levels last seen in 1998.
Treasury two-year yields rose further above 4% to trade the highest since 2007 as investors positioned for further rate hikes in the US. The 10-year yield erased some of Wednesday’s fall while still reflecting market worries of recession.
Sentiment took an additional hit from Russia’s escalation of its war with Ukraine and tensions between Beijing and Taiwan.
The euro was around the lowest in 20 years and the yuan weakened even as China set its reference rate for the currency stronger-than-expected for a record 21st day.
“After an initial bout of volatility in the first couple hours after the Fed hike, the market has clearly sided with the US dollar, which offers better carry and safe-haven appeal as downside US and global growth fears percolate,” said David Croy, a strategist at Australia & New Zealand Banking Group Ltd.
Jerome Powell vowed that the Fed would crush inflation and said his main message was that officials were “strongly resolved” to bring it down to the 2% goal, adding that “we will keep at it until the job is done.” The phrase invoked the title of former Fed chief Paul Volcker’s memoir “Keeping at It.”
Officials forecast that rates would reach 4.4% by the end of this year and 4.6% in 2023, a more hawkish shift in their so-called dot plot than expected. That implies a fourth-straight 75-basis-point hike may be on the table for the next gathering in November — about a week before the US midterm elections.
Markets in Asia were also contending with a host of other central bank meetings in the region. Taiwan, Indonesia and the Philippines were all set to raise rates on Thursday.
The Fed’s “outcome is likely to keep pressure on risk assets” in Asia, Clara Cheong, a global market strategist at JPMorgan Asset Management, said on Bloomberg Radio. “It could especially hurt export-oriented companies due to the effect of a strong dollar.”
Elsewhere in markets, South Korea’s won weakened past the 1,400 threshold to the greenback for the first time since 2009. Bitcoin was under pressure below $19,000.
Gold fell to near a two-year low and was on the cusp of sinking into a bear market. Oil traded near $83 a barrel.
Key events this week:
- The Bank of England interest rate decision, Thursday
- US Conference Board leading index, initial jobless claims, Thursday
Here are some of the main moves in markets:
- S&P 500 futures fell 0.5% as of 6:55 a.m. in London. The S&P 500 fell 1.7%
- Nasdaq 100 futures dropped 0.7%. The Nasdaq 100 fell 1.8%
- Euro Stoxx 50 futures fell 1.7%
- The Hang Seng Index dropped 1.9%
- The Shanghai Composite Index slid 0.3%
- The Topix index weakened 0.2%
- The Kospi index lost 0.6%
- The Bloomberg Dollar Spot Index rose 0.4%
- The Japanese yen fell 0.6% to 144.93 per dollar
- The offshore yuan weakened 0.3% to 7.0957 to the dollar
- The euro was down 0.1% at $0.9830
- The yield on 10-year Treasuries rose two basis points to 3.55%
- West Texas Intermediate crude rose 0.5% to $83.36 a barrel
- Gold declined 0.7% to $1 661.79 an ounce