Asian shares follow Wall St lower as Fed warns of higher rates

Asian stocks slipped on Thursday after a pullback on Wall Street as markets registered dismay at the Federal Reserve’s warning that even higher interest rates are on the horizon after its latest hike .

Oil prices fell while US futures rose.

Japan reported its trade deficit widened in November to 2 trillion yen ($15 billion) as higher oil costs and a weak yen combined to drive higher imports. It was the 16th consecutive month of red ink and an all-time high for the month of November.

Tokyo’s Nikkei 225 lost 0.4% to 28,051.70 and Hong Kong’s Hang Seng sank 0.9% to 19,498.32. Seoul’s Kospi fell 1.3% to 2,367.91.

The Shanghai Composite was down 0.1% at 3,173.21 and Australia’s S&P/ASX 200 was down 0.6% at 7,204.80.

Stocks fell in Taiwan and Bangkok but rose in Mumbai.

As expected, the US central bank raised its key short-term rate by 0.50 percentage points on Wednesday. It was his seventh climb this year. The Fed also said it expects rates to be higher in the coming years than it had forecast.

Recent signs that inflation has eased had fueled optimism that the Fed could signal the possibility of rate cuts in the second half of next year. But during a news conference, Fed Chairman Jerome Powell stressed that the full effects of the central bank’s efforts to slow the economy to reduce inflation have yet to be fully felt.

“The Fed did not welcome disinflationary trends just beginning to emerge and focused on robust job gains and elevated inflation. Any hope of a soft landing vanished as the Fed appears to be committed to taking much higher rates,” Oanda’s Edward Moya said in a comment.

The S&P 500 lost 0.6% to 3,995.32, giving up an earlier gain of 0.9%. The Dow Jones Industrial Average fell 0.4% to 33,966.35, and the Nasdaq returned 0.8% to close at 11,170.89.

About 70% of S&P 500 stocks closed lower on Wednesday, with technology companies, banks and retailers among the benchmark’s top weights. Apple fell 1.6%, Goldman Sachs fell 2.3% and Best Buy fell 3.9%.

Shares of small companies also fell. The Russell 2000 fell 0.7% to 1,820.45.

The Fed’s latest hike is smaller than four previous hikes of 0.75 percentage points and comes a day after an encouraging report showed US inflation slowed in November for a fifth straight month to 7.1 %.

Powell said the Fed plans to keep rates high enough to slow the economy “for a while” to ensure inflation is really squashed. He said the Fed’s projections released Wednesday did not include any rate cuts in 2023.

“Inflation data received so far for October and November show a positive reduction in the monthly pace of price increases, but substantially more evidence will be needed to provide confidence that inflation is on a sustained downward path,” Powell said. .

“I wouldn’t see the committee cutting rates until we are confident that inflation is coming down on a sustained basis,” Powell said.

The latest hike brings the Fed’s federal funds rate to a range of 4.25% to 4.5%, its highest level in 15 years. Fed policymakers forecast the central bank rate to reach a range of 5% to 5.25% by the end of 2023. This suggests the Fed is ready to raise rates by an additional 0.75 percentage points next year

The Fed also indicated that it expects its rate to drop by the end of 2024 to 4.1% and to drop to 3.1% by the end of 2025.

Consumer spending and employment remain strong. This has made it more difficult for the Fed to control inflation while helping to protect the slowing economy from a potential recession.

The US will release its weekly unemployment benefits report on Thursday, along with retail sales data for November.

In other trading Thursday, benchmark U.S. crude was down 60 cents at $76.68 a barrel in electronic trading on the New York Mercantile Exchange. It gained $1.89 to $77.28 a barrel on Wednesday.

Brent crude, the benchmark for international trade, was down 46 cents at $82.24 a barrel.

The US dollar rose to 135.66 Japanese yen from 135.46 yen. The euro fell to $1.0657 from $1.0682.

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