Asian markets slump after Fed hikes rates

Markets in the US and Asia reacted badly after Fed Chairman Jerome Powell said the bank would not shift course on reducing its balance sheet. (Photo: AFP/Saul Loeb)

The Nikkei plunged to a 15-month low as investors took fright over the pace of monetary tightening, with a slump triggered by the Dow's fall to its lowest level of 2018 gathering pace.

The US Federal Reserve raised rates for the fourth time this year - as expected - but markets reacted badly after chairman Jerome Powell said the bank would not shift course on reducing its balance sheet.

Investors had hoped for a less aggressive approach amid concern that global growth is slowing, while Powell played down the impact of recent market turmoil on the US economy.

"They think the Fed has completely misjudged the situation and now it's just a matter of ... trying to find an exit while you can," said Kyle Rodda, a market analyst at IG Group in Melbourne.

"We're probably entering a stage now where markets have got it (in) their head that we're preparing for quite sustained downside going into 2019."

The Fed now projects only two interest rate increases, down from three previously, as it trimmed its forecast for US growth and inflation.

Stephen Innes, head of Asia-Pacific trade at OANDA, said the "Fed delivered a dovish hike, but clearly, there wasn't enough affirmation in the statement that the Fed was close to pausing or ending their interest rate hike cycle sooner than expected".

But some analysts urged caution.

"The market overreacted to the Fed, I think," said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney.

"It is moving in a dovish direction and is on track for a pause in the first half of next year. Markets are being driven by fear rather than fundamentals."

But the spillover from the rate hike continued to rattle investors in Asia Thursday, deepening concern over global growth prospects which are already facing headwinds from President Trump's trade war with Beijing, a slowing Chinese economy, and potential turmoil from Britain quitting the European Union.

TRADE WAR TRUCE

Japanese stocks also declined after the Bank of Japan left ultralow rates unchanged, with the threat of trade protectionism and slowing global growth casting a pall over the export-driven economy.

A strong yen also put downward pressure on stocks, with the dollar falling below ¥112.

Nissan dropped more than two per cent after a Japanese court rejected prosecutors' request to extend the detention of former Nissan chairman Carlos Ghosn after his arrest for financial misconduct.

Shanghai fell more than 0.5 per cent, even after the People's Bank of China said it would supply lower-cost liquidity for up to three years to banks willing to lend more to small companies, as policy makers aim to shore up the flagging economy.

Sydney closed more than one per cent lower while Hong Kong and Seoul were both well down.

Wednesday's quarter-point hike in the US came after Trump repeatedly demanded on Twitter the bank hold rates, in what was regarded as the most public assault on the Fed's independence in decades.

The US president has cited the dollar's strength as a reason the Fed should stop raising interest rates because higher rates tend to attract foreign capital to a currency.

Both oil contracts slid Thursday, reversing strong gains from a day earlier on concerns about growth and US oversupply, and tracking equity losses.

A smaller than expected fall in US crude stockpiles added to supply glut fears triggered earlier this week by forecasts of increasing shale oil production.

Traders are also wary of prospects of softening global growth.

"A tepid global economic growth outlook also weighed on oil prices as the demand for energy is probably going to remain subdued," said Margaret Yang Yan, from CMC Markets in Singapore.

The equities slump spread to Europe, with London and Paris both shedding 1.4 per cent and Frankfurt dipping 1.3 per cent in early trade.

- Key figures around 0820 GMT -

Tokyo - Nikkei 225: DOWN 2.8 per cent at 20,392.58 (close)

Hong Kong - Hang Seng: DOWN 0.9 per cent at 25,623.53 (close)

Shanghai - Composite: DOWN 0.5 per cent at 2,536.27 (close)

Euro/dollar: UP at US$1.1429 from US$1.1377

Dollar/yen: DOWN at ¥111.90 from ¥112.43

Pound/dollar: UP at US$1.2660 from US$1.2616 at 2200 GMT

Oil - West Texas Intermediate: DOWN 12 cents at US$47.08 per barrel

Oil - Brent Crude: DOWN US$1.04 at US$56.20 per barrel

New York - Dow: DOWN 1.5 per cent at 23,323.66 (close)

London - FTSE 100: DOWN 1.4 per cent at 6,668.50 point