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Stocks in the Asia-Pacific region experienced a sell-off on Thursday following signals from the US Federal Reserve that it intends to resume interest rate increases to combat high inflation.
The Hang Seng index in Hong Kong was the worst performer, dropping 3%, while Australia’s S&P/ASX 200 and Japan’s Topix fell over 1%. In China, the CSI 300 index of Shanghai- and Shenzhen-listed shares declined by 0.7%.
The decline in markets resulted from hawkish comments made by US central bank officials. Minutes from the June meeting of the rate-setting Federal Open Market Committee showed that “almost all” participating officials believed additional increases in the Fed’s benchmark rate would be necessary. They also expressed concerns about “unacceptably high” inflation.
The June meeting marked a departure from the Fed’s previous efforts to bring down inflation from its multi-decade high last year. It was the first time in 10 consecutive meetings that the US central bank chose to keep the federal funds rate unchanged.
Following the release of the minutes, stocks on Wall Street finished the day lower, with the S&P 500 and Nasdaq Composite both slightly down by 0.2%. Ten-year US Treasury yields rose to 3.9553% in Asian trading on Thursday, after increasing by 0.8% the previous day.
“Assuming the upcoming employment and consumer price index reports continue to show similar concerns as last month, we believe the chances of a rate hike on July 26 have increased,” said Stephen Innes, managing partner at SPI Asset Management in Hong Kong.
On Friday, US payrolls data is set to be released, and economists polled by Bloomberg predict a slowdown in hiring for June. However, it’s worth noting that the median forecast has underestimated jobs data for the past 14 months.
In Hong Kong, sentiment was also dampened by expectations of monetary easing, which could impact Chinese banks’ returns. The Hang Seng Mainland Banks index fell by nearly 6%, with some of the banks trading ex-dividend.
“Lower interest rates would lead to a decrease in banks’ profits and the renminbi could depreciate as well,” explained Louis Tse, founder of Wealthy Securities in Hong Kong. “These factors are driving investors to sell Chinese bank stocks.”
Futures markets predicted a 0.2% drop for the S&P 500 at the opening of Wall Street, while the FTSE 100 was expected to fall by 0.3% in London.
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