Asian stocks battered by hawkish Fed; More rate decisions awaited

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Technology stocks were the worst hit, tracking overnight declines in their U.S. peers after the Federal Reserve held interest rates as expected, but warned that sticky inflation was likely to attract at least one more interest rate hike this year.

The central bank also said that interest rates will likely fall by a smaller-than-expected margin in 2024. The prospect of higher U.S. rates bodes poorly for Asian markets, given that it tightens monetary conditions and limits foreign capital flows into the region. This trend had battered Asian markets over the past year.

Tech-heavy bourses such as South Korea’s KOSPI, Hong Kong’s Hang Seng and the Nikkei 225 were the worst performers for the day, falling between 0.7% and 1.3%. 

The Fed’s comments rattled broader financial markets. Australia’s ASX 200 sank 0.8%, tracking a decline in commodity prices.

Futures for India’s Nifty 50 index pointed to a negative open, after the index plummeted from record highs in the prior session. Sentiment towards India was also somewhat rattled by a growing diplomatic row with Canada over the alleged killing of a Sikh separatist leader. 

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes fell about 0.3% and 0.1%, respectively, losing relatively less than their regional peers.

The People’s Bank of China kept its loan prime rates at record lows on Wednesday, as expected. But the bank also said that it stood ready to provide the economy with more monetary stimulus, as it grapples with a slowing post-COVID economic recovery. 

Concerns over an economic slowdown saw Chinese stocks hit a 10-month low in recent sessions, as investors also grew impatient with Beijing’s somewhat conservative approach to more stimulus. 

Losses in Japanese stocks also came in anticipation of a Bank of Japan meeting on Friday, where the central bank is widely expected to offer cues on a potential pivot away from negative interest rates. Governor Kazuo Ueda had recently flagged such a move, stating that wages and inflation had grown steadily in recent months.

But before that, rate decisions in the Philippines and Indonesia are due on Thursday. Stocks in both countries advanced slightly, with their respective central banks widely expected to hold rates steady. 

The Bank of England is also set to decide on rates later in the day, with recent data showing that UK inflation grew slightly less than expected in August.