Tokyo, Dec. 15 (BNA): Asian stocks fell, tracking declines on Wall Street, after the US Federal Reserve expected interest rates to rise for a longer period.
US Treasury yields remained subdued and the curve inverted sharply as traders continued to worry that tighter policy would lead to a recession. The US dollar fell near a six-month low against major currencies, Reuters reported.
Despite this, crude oil continued to rally after rebounding from last week’s lowest level in nearly a year, with OPEC and the International Energy Agency predicting a pickup in demand next year as China’s economy reopens.
Japan’s Nikkei fell 0.17%, while South Korea’s Kospi fell 0.92% and the Australian share index fell 0.4%.
Hong Kong’s Hang Seng Index fell 1.71% and blue-chip stocks in mainland China fell 0.51%.
MSCI’s broadest index of Asia-Pacific shares fell 0.91%, after rising to 160.37 in the previous session for the first time since late August.
Overnight, the US S&P 500 lost 0.61%, although e-Mini futures pointed to a slight bounce of 0.06% to Thursday’s reopening.
Federal Reserve Chairman Jerome Powell said on Wednesday that the central bank will deliver more interest rate hikes next year even as the economy slides toward a possible recession, arguing that a higher cost will be paid if the US central bank does not control inflation.
The comments came after the Fed decided to raise its benchmark interest rate by half a percentage point as expected – down from recent increases of 75 basis points – but expected a final rate above 5%, a level not seen since the sharp economic downturn in 2007.
“This is a very hawkish signal from the Fed: a much higher interest rate than it was last September, which also has real upside risks associated with it,” TD Securities analysts wrote in a note to a client.
They added, “The Fed essentially acknowledged at this meeting that inflation is likely to remain more steady than initially anticipated, necessitating a more restrictive policy stance, which will end up pushing the US economy into recession in 2023.”
“The weakness in risk assets and the flattening of the curve suggest that recession fears may be the dominant driver of market price action.”
The 10-year Treasury yield fell again below 3.5% in Tokyo trading, with the 2-year yield also dropping below 4.24%.
The difference between them also widened slightly to negative 74.3 basis points. An inverted yield curve has been a reliable predictor of recessions in the past.
The dollar index – which measures the greenback against six major currencies, including the euro and the pound sterling – settled near an overnight low of 103.44, a level not seen since June 16.
The euro fell 0.15% to $1.0664, but was still near Wednesday’s peak in more than six months at $1.0695.
Sterling fell 0.19% to $1.2405, not far from last night’s high of $1.2446, also the strongest in just over six months.
Investors’ eyes will now be trained on policy decisions from the European Central Bank and the Bank of England later in the day as officials there also stood ready to raise interest rates again against the growing risks of triggering a recession.
Crude oil traders took a more bullish view of the global economy, welcoming the forecasts from OPEC and the International Energy Agency.
OPEC said it expects oil demand to grow by 2.25 million bpd over the next year to 101.8 million bpd.
The International Energy Agency raised its estimate for oil demand growth in 2023 to 1.7 million barrels per day, for a total of 101.6 million barrels per day.
Brent crude futures rose by 1%, $82.71, after closing Wednesday’s session, up $2.02, while US West Texas Intermediate crude futures fell 4 cents, to $77.24 a barrel, after rising $1.94 in the previous session.
SM