Asian stocks fall along with the dollar because the Fed is becoming more aggressive and China’s COVID is worried.
On Thursday, Asian stocks fell along with those on Wall Street after the U.S. Federal Reserve said that higher interest rates would stay for a while.
As long as traders worried that tighter policy would cause a recession, U.S. Treasury yields stayed low and the curve was deeply inverted. The U.S. dollar languished near a level that hadn’t been seen in six months.
Infections and bad economic news from China also made people sad. Some of crude oil’s big gains from Wednesday were lost.
Related: Asian stocks increased on the U.S. reprieve from inflation, but Fed caution prevailed.
The Nikkei fell 0.42 percent, the Kospi fell 1.32 percent, and Australia’s stock market index fell 0.64 percent.
The Hang Seng in Hong Kong fell by 1.13 percent, and mainland Chinese blue chips fell by 0.15 percent.
MSCI’s broadest index of Asia-Pacific stocks fell by 0.94 percent. It had reached a high of 160.37 the day before, which was the first time since late August that it had been that high.
Overnight, the U.S. S&P 500 fell by 0.61 percent, but e-Mini futures pointed to a small gain of 0.09 percent when the market opened again on Thursday.
Europe was going to open down, with Dax futures showing a 0.37 percent drop and FTSE futures dropping 0.09 percent.
Fed Chair Jerome Powell said on Wednesday that the central bank would raise rates more next year, even though the economy is heading toward a possible recession. He said that if the U.S. central bank doesn’t get a better handle on inflation, it will cost more in the long run.
The comments came after the Fed decided, as expected, to raise the benchmark rate by a half of a percentage point, which is less than the recent 75 basis point increases. However, the Fed predicted that the final rate would be above 5%, which is a level that hasn’t been seen since the 2007 recession.
In a research note, TD Securities analysts said, “This is a very hawkish signal from the Fed.” “The terminal rate is much higher than it was in September, and there is a real risk that it will go up.”
“At this meeting, the Fed basically admitted that inflation is likely to stay higher than they had first thought.” “This will require a more restrictive policy stance, which will push the U.S. economy into a recession in 2023,” they said. “The decline in risky assets and flattening of the curve suggest that fears of a recession may be the main factor affecting market prices.”
In Tokyo trading, the 10-year Treasury yield went down to 3.49 percent, and the two-year yield also went down to 4.24 percent.
The difference between them grew a little and is now -75.2 basis points. In the past, an inverted yield curve was a good sign of a coming recession.
The dollar index, which compares the dollar to six major currencies like the euro and the pound, stayed close to its overnight low of 103.44, which hadn’t been seen since June 16. It was last worth 0.16 percent more at 103.82.
Some analysts saw the reaction in the interest rate and currency markets as a sign that traders don’t trust Powell’s policy story and are still betting on a faster drop in inflation and a quicker Fed pivot.
Chris Weston, the head of research at Pepperstone, wrote in a client note that the market still thinks inflation will reach the target in 2023. “A possible standoff between the Fed and the markets is likely to lead to volatility.”
The euro went down by 0.2% to $1.0659, which is still close to Wednesday’s more than six-month high of $1.0695.
Sterling went down by 0.28% to $1.2393, but it was still close to an overnight high of $1.2446, which was also the highest in just over six months.
Investors will now keep an eye on what the European Central Bank and the Bank of England do with their policies later in the day. Officials at these two banks are also ready to raise rates again if they think there is a risk of a recession.
Related: Asian stocks rise slowly as concerns over the Fed meeting and CPI data persist.
Crude oil lost some of the ground it made overnight when it was boosted by predictions from OPEC and the International Energy Agency that demand will go up again next year, in part because China will reopen.
China’s economy, on the other hand, lost more steam in November as factory output slowed and retail sales kept falling. This was because COVID-19 infections were on the rise and people were unable to move around as much.
Brent crude futures went down 64 cents, or 0.8%, to $82.06 per barrel, while U.S. crude futures went down 74 cents, or 1.0%, to $76.54 after going up $1.94 the day before.