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Asian shares fall as Fed rate hike rally fizzles

Asian shares fall as Fed rate hike rally fizzles

A man wearing a protective mask to help curb the spread of the coronavirus walks past an electronic stock board showing Japan's Nikkei 225 index and Japanese yen/US dollar exchange rate at a securities firm Thursday, Jun 16, 2022, in Tokyo. (AP Photo/Eugene Hoshiko)

SHANGHAI: Asian stocks fell and the dollar regained its footing on Thursday (Jun 16) as investors continued to digest the impact of surging inflation and an aggressive policy tightening outlook from global central banks.

The US Federal Reserve approved on Wednesday its biggest interest rate hike since 1994, lifting the target federal funds rate by 75 basis points to a range of between 1.5 per cent and 1.75 per cent. Fed officials also see further steady rises this year, targeting a federal funds rate of 3.4 per cent by year-end.

While equity investors initially cheered the widely expected move, rising unease over the course of the trading day ate away at gains.

Tokyo, Seoul, Wellington, Manila and Jakarta held up, but Shanghai, Singapore, Sydney, Taipei, Mumbai and Bangkok were all in negative territory.

Hong Kong led the losses, with the Hang Seng Index down 2.2 per cent, after a big gain on Wednesday and as investors there contemplated a sharp rate hike in the city owing to its monetary policy link to the United States.

After retreating from a 20-year peak following the Fed meeting, the dollar regained its footing in the Asian session.

The global dollar index, which tracks the greenback against a basket of six peers, was last up 0.5 per cent at 105.29.

Souring the mood, the Swiss National Bank raised its policy interest rate for the first time in 15 years with a surprise 50 basis point hike, sending the safe-haven franc up sharply.

The Fed's 0.75 percentage point increase had been expected after data on Friday showed US inflation at its highest since 1981, as the Ukraine war supply chain snarls sent energy and food costs spiralling.

Fed chair Jerome Powell said it was "essential" to lower inflation, and policymakers "have both the tools we need and the resolve it will take to restore price stability on behalf of American families".

He stressed that the goal is to achieve that without derailing the US economy but acknowledged there was always a risk of going too far.

"(Inflation expectations) are starting to look like they're too high. That I think is one reason why Powell wanted to do a 75 ...  And I think they will also go again in July," said Joseph Capurso, head of international economics at Commonwealth Bank of Australia.

"They've got to get inflation down. They're so far behind the curve it's not funny."

European markets tumbled in the morning, with London traders awaiting a Bank of England policy meeting that is expected to see it hike rates for a fifth straight time.

"Powell must be pretty pleased with his press conference and the market reaction as he delivered what I would interpret as a 'dovish' 75 basis point hike," said SPI Asset Management's Stephen Innes.

But he added: "The Fed now needs the data to play along for the ride and inflation to not surprise on the upside again. If it does, 75 basis points for July and September will be quickly repriced.

"The much taller order for stocks to return to any semblance of bullish form would likely require an improbable upbeat mix of a seamless China growth recovery, a convincing deceleration of US inflation, and much softer oil prices."

Other analysts were also wary about the outlook, with some concerned that the Fed measures could tip the world's top economy into recession.

"The volatility in bond markets is definitely not over," Jasmin Argyrou, of Credit Suisse Private Bank, told Bloomberg Television. "The likelihood is that policy rates in the US may need to go to a more restrictive stance than even the market is pricing in."

Source: Agencies/yb
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