Asian stocks follow Wall Street lower as Fed warns of higher interest rates

BANGKOK – Asian stocks slid Thursday after a Wall Street pullback, as markets expressed dismay at the Federal Reserve’s warning that even higher interest rates are on the way after its latest hike.

Oil prices fell while US futures rose.

Japan reported its trade deficit widened to more than 2 trillion yen ($15 billion) in November as higher oil costs and a weak yen combined to boost imports. It was the 16th straight month of red ink and a record high for the month of November.

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

The Shanghai Composite Index fell 0.1% to 3,173.21 and Australia’s S&P/ASX 200 lost 0.6% to 7,204.80.

Stocks fell in Taiwan and Bangkok but rose in Mumbai.

As expected, the US Federal Reserve raised its short-term interest rate by 0.50 percentage points on Wednesday. It was his seventh hike this year. The Fed also said it expects interest rates to be higher than it had anticipated in the coming years.

Recent signs of slowing inflation 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 Chair Jerome Powell stressed that the full impact of the central bank’s efforts to slow the economy to bring down inflation has not yet been fully felt.

“The Fed did not welcome the disinflationary tendencies that are emerging, focusing on robust job gains and elevated inflation. Any hopes of a soft landing have faded as the Fed appears determined to take rates much higher,” 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 Composite slipped 0.8% to close at 11,170.89.

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

Small company stocks also fell. The Russell 2000 Index slipped 0.7% to 1,820.45.

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

Powell said the Fed plans to keep interest rates at levels high enough to slow the economy “for some time” to ensure inflation is truly crushed. He said the Fed’s forecasts released on Wednesday include no rate cuts in 2023.

“Inflation data received so far for October and November shows a welcome slowdown in the monthly pace of inflation, but much more evidence will be needed to inspire confidence that inflation is on a sustained downward path,” Powell said.

“I wouldn’t see the committee cut rates until we’re confident that inflation is coming down sustainably,” 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 that the central bank’s policy rate will reach a range of 5% to 5.25% by the end of 2023. This suggests the Fed is poised to raise rates by another 0.75 percentage point next year.

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

Consumer spending and employment remain strong. That has made it harder for the Fed to tame inflation while helping to shield the slowing economy from a possible recession.

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

For the other trading day on Thursday, the US benchmark crude fell 60 cents to $76.68 a barrel in electronic trading on the New York Mercantile Exchange. On Wednesday it was up $1.89 to $77.28 a barrel.

Brent crude, the price basis for international trade, fell 46 cents to $82.24 a barrel.

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

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, transcribed or redistributed without permission. Asian stocks follow Wall Street lower as Fed warns of higher interest rates

Sarah Y. Kim

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