Stock markets in Asia have fallen to their lowest level in nearly 15 months after America s central bank chief confirmed plans to increase interest rates this year, beginning in March.
With investors concerned about political tensions between Russia and Ukraine, supply chain problems and rising oil prices, the possibility of sustained increases in the cost of borrowing by the world's most powerful economy has caused a spasm of anxiety through financial markets on Thursday.
The Nikkei plunged more than 3% in Japan, while the Kospi in Seoul found itself in similarly negative territory. The Hong Kong market was off 2.5% and Sydney's market was nearly 2%.
The broad gauge of regional markets outside Japan fell more than 2% to its lowest level since November 2020.
The US shares dropped on Wednesday after a sharp reversal in them. The S&P 500 closed 0.14% lower and the Nasdaq Composite finished barely higher, erasing a rise of more than 3.4%. The Dow Jones average dropped 0.38%.
The FTSE 100 is expected to fall nearly 2% when it opens on Thursday morning, with Wall Street markets heading for a hefty loss, according to futures trade.
Mike Kelly, head of global multi-asset at PineBridge Investments in the US, said it was a sign that it was a sign to get the heck out of US stocks. He said that it's all about selling longer duration assets, so we are underexposed to US equities. The US Federal Reserve chairman, Jerome Powell, said the central bank was likely to raise interest rates in March and reaffirmed its plans to end its Covid-emergency bond purchases that month before launching a significant reduction in its asset holdings in its latest policy update on Wednesday.
Powell warned that inflation, which has hit levels not seen for decades, remains above the Fed's long-run goal and supply chain issues may be more persistent than previously thought.
David Chao, global market strategist, Asia Pacific at Invesco said there was a shift in terms of a relatively dovish statement and then a relatively hawkish press conference.
Powell is not committing to the size or frequency of rate hikes and the timing of the balance sheet reduction. I think that gives him a bit of wiggle room as to how quickly and with what velocity he wants to normalise monetary policy in the US. Chao said that a higher inflation in the US, now at 7%, could lead to a more aggressive monetary policy tightening of the US, which could lead to more US rate hikes.
A tougher stance by the Fed is expected to see other central banks drop into line or increase rates, such as in the Bank of England case, which increased borrowing costs in December in order to crub rising consumer prices. The central bank in South Korea has already hiked rates three times in six months.
With the somewhat hawkish signals by the Fed, there may be greater pressure on central banks to act on curbing inflationary pressures, according to Yeap Jun Rong, market strategist at IG. Singapore s central bank surprised markets by tightening its monetary policy settings in its first out-of- cycle move in seven years earlier this week.
On Thursday the US dollar rose to 96.604, near five week highs after higher US bond yields lifted the dollar index, which measures the dollar against major peers, near five-week highs. The pound dropped to $1.343.
The global benchmark, Brent crude, fell 0.64% on profit-taking to $89.38 per barrel.