May 23, 2022

Asian markets, US futures tumble after Fed signals a March rate hike

Investors worry higher US rates could cause capital to leave Asia’s emerging markets and spur the depreciation of currency in the region, causing financial turbulence.

Japan’s Nikkei (N225) slid 3.3% by afternoon trading, deepening earlier losses.
Korea’s Kospi (KOSPI) dropped 3.2%. The index is on track to fall into a bear market, and was last trading down more than 20% from a peak last July.
The Fed is getting ready to raise interest ratesThe Fed is getting ready to raise interest rates

Tech shares fell heavily. An index in Hong Kong tracking the largest Chinese technology companies sank more than 4%. Alibaba was down more than 6%.

Softbank (SFTBF) and Tokyo Electron — a big Japanese semiconductor and electronics firm — also fell 9% and 5%, respectively, in Tokyo.
On Wall Street, Dow (INDU) futures were down about 440 points. S&P 500 (INX) and Nasdaq (COMP) were down 1.5% and 1.9%, respectively. The three indexes closed slightly lower on Wednesday.
The declines come after Federal Reserve Chairman Jerome Powell signaled that the Fed is getting ready to raise interest rates, even though the central bank kept rates near zero for now.

“I would say the committee is of a mind to raise the federal funds rate at the March meeting, assuming that conditions are appropriate for doing so,” he told reporters on Wednesday.

In a statement, the Fed said that it would “soon be appropriate to raise the target range for the federal funds rate,” with inflation well above 2% and a strong labor market.

Expectations for higher US rates pushed a key dollar index to the highest level in nearly a month. The US Dollar Currency Index — which measures the greenback’s strength against a basket of currencies used by US trade partners — is up 0.7% to trade at 96.65.

Outside of external growth shocks, “there is little that would prevent the Fed from raising interest rates at its March meeting,” wrote Kerry Craig, global market strategist for JP Morgan Asset Management, in a note on Thursday. He added that a tightening fed policy would likely add to market volatility over the course of the year.”

Xi Jinping urges West not to 'slam the brakes' by hiking interest rates too quicklyXi Jinping urges West not to 'slam the brakes' by hiking interest rates too quickly

The International Monetary Fund warned recently that emerging market and developing economies should prepare for possible turbulence in financial markets as the United States and Europe lift policy rates.

“Higher returns elsewhere will incentivize capital to flow overseas, putting downward pressure on emerging market and developing economy currencies and raising inflation,” the organization said in its world economic outlook report on Tuesday.
And Chinese President Xi Jinping last week urged central banks in the West not to hike interest rates too fast to fight inflation, as his country goes in the other direction to battle a sharp economic slowdown.

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