Asian markets drop after rally as traders consider higher rates

Asian markets drop after rally as traders consider higher rates

With prices rising at their fastest pace in four decades, the Fed this week set itself on a much more hawkish path to get them under control by pledging to end its vast bond-buying programme by March and indicating a series of interest rate hikes that could run through 2023.

The news on Wednesday was met with a rally across US and Asian markets as investors welcomed an end to the some of the uncertainty that had hung over markets for months, and a Fed plan to rein in inflation.

OANDA's Craig Erlam said a gauge of possible rate hikes "was towards the hawkish end of expectations, something investors welcomed with open arms".

"It's not often those two things have been said together since the global financial crisis. In fact, it may be a first. The last time the Fed raised rates, it faced strong criticism from some, most notably President Trump.

"This time, it's not the possibility of inflation, rather the prospect of it rising out of control that's prompting the move and clearly, investors fear inflation far more than modest tightening. As they should."

A Bank of England rate hike on Thursday and the European Central Bank's plan to taper its own financial support -- but extending other help -- were met with similar upbeat responses in Europe.

However, Wall Street's three main indexes retreated Thursday as investors took stock of the new policy, with tech firms -- which are more susceptible to higher borrowing costs -- taking the brunt of the selling, sending the Nasdaq down more than two percent.

And Asia followed.

Tokyo lost 1.8 percent while Singapore, Wellington, Mumbai, Bangkok, Manila and Jakarta also dropped into the red. Sydney, Seoul and Taipei edged up.

"The cycle you are seeing here is really about a change in tone, a change in regime, the possibility of tighter policy next year, not just at the Fed, but globally," Alicia Levine, of BNY Mellon Wealth Management, told Bloomberg Television.

Hong Kong and Shanghai lost more than one percent, with selling amplified by a fresh US crackdown on China with sanctions and trade curbs over Beijing's treatment of the Uyghur minority in Xinjiang.

Lawmakers voted to make the United States the first country to ban virtually all imports from the northwestern region over concerns of the prevalence of forced labour, while also hitting companies linked to surveillance there.

Rights groups say China has been honing new technologies in artificial intelligence and DNA tracking to keep tabs on Uyghurs.

The volley is the latest in a standoff between the superpowers that has left relations at their coldest in decades. Beijing hit back Friday, saying it was "strongly dissatisfied and firmly opposes this".

London's equity market opened slightly higher but Paris and Frankfurt dipped.

- Key figures around 0820 GMT -

Tokyo - Nikkei 225: DOWN 1.8 percent at 28,545.68 (close)

Hong Kong - Hang Seng Index: DOWN 1.2 percent at 23,192.63 (close)

Shanghai - Composite: DOWN 1.2 percent at 3,632.36 (close)

London - FTSE 100: UP 0.1 percent at 7,269.15

Dollar/yen: DOWN at 113.65 from 113.67 yen late Thursday

Euro/dollar: DOWN at $1.1320 from $1.1330

Pound/dollar: DOWN at $1.3315 from $1.3324

Euro/pound: DOWN at 85.01 pence from 85.04 pence

West Texas Intermediate: DOWN 0.7 percent at $71.88 per barrel

Brent North Sea crude: DOWN 0.5 percent at $74.64 per barrel

New York - Dow: DOWN 0.1 percent at 35,897.64 (close)