Global Markets: Asian shares pull back after Fed's signals for more rate hikes

By Hideyuki Sano TOKYO (Reuters) - Asian shares retreated on Thursday after the U.S.

Reuters December 20, 2018 07:05:24 IST
Global Markets: Asian shares pull back after Fed's signals for more rate hikes

Global Markets Asian shares pull back after Feds signals for more rate hikes

By Hideyuki Sano

TOKYO (Reuters) - Asian shares retreated on Thursday after the U.S. Federal Reserve raised rates, as expected, and kept most of its guidance for additional hikes next year, dashing investor hopes for a more dovish policy outlook.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> dropped 0.34 percent, with Australian shares <.AXJO> dropping as much as 0.65 percent to two-year lows.

Japan's Nikkei <.N225> shed 0.8 percent to nine-month lows.

In New York, U.S. S&P 500 Index <.SPX> lost 1.54 percent to hit its lowest level since September 2017. U.S. stocks are on pace for their biggest December decline since 1931, the depths of the Great Depression.

"I think the Fed may be underestimating other factors at play," said Bob Baur, chief global economist at Principal Global Investors in Des Moines, Iowa in the Unites States.

"Trade has been making headlines, but I think a gradual tightening of monetary policy has been the driving force behind recent market volatility. With corporate borrowing and spending still high, and the Fed continuing to reduce its balance sheet, I’d expect volatility to remain if this tightening continues," he said.

The Fed raised key overnight lending rate rates by 0.25 percent point as expected to a range of 2.25 percent to 2.50 percent.

It said "some" further rate hikes would be necessary in the year ahead, with its policymakers projecting two rate hikes on average next year instead of three they saw back in September, a change that was also largely in line with expectations.

But the slight revision was not enough to ease market fears over further U.S. economic slowdown on the back of trade tensions, a waning boost from tax cuts and tightening monetary conditions for companies.

U.S. junk bonds were sold off sharply, with their ETFs falling 0.9 percent, the biggest decline since March 1.

As investors flocked to the safety of government bonds, the 10-year U.S. Treasuries yield fell below its May 29 low of 2.759 percent to as low as 2.750 percent, a level last seen in early April.

A rise in short-term interest rates and a fall in the long-date yield rekindled worries of an inversion in the yield curve, where shorter-debt yields become higher than longer-term ones.

Historically an inversion between short-yields, such as three-month and two-year yields, and 10-year yields has been seen as a fairly reliable indicator of a recession down the road.

"We expect additional rate hikes will invert the three-months to 10-year yield curve which is a reliable signal for a bear market for stocks and a coming recession for both the U.S. and the rest of the world," said Jeffrey Kleintop, Chief Investment Strategist at Charles Schwab in Boston. "So seriously something to keep a close eye on. We do expect a very difficult year for investors."

The two-year U.S. yield stood at 2.656 percent , just 0.113 percent less than the 10-year yield.

As one 25 basis point rate hike would likely invert the yield curve, many market players are sceptical whether the Fed can raise rates at all next year.

Fed funds futures are now pricing in only about 50 percent chance of one rate hike.

The dollar bounced back against major currencies after the Fed was perceived to be more hawkish than anticipated.

The euro traded at $1.1380 , off Wednesday's high of $1.14395 hit before the Fed's policy announcement.

The dollar stood at 112.44 yen , bouncing back from a seven-week low of 112.09 touched just before the Fed.

Commodity currencies fared worse due to weak oil prices.

The Australian dollar hit a seven-week low of $0.7085 late on Wednesday and last stood at $0.7116.

The Canadian dollar hit a 18-month trough of C$1.3507 per dollar and last traded at C$1.3485.

Later in the day, central banks from Japan, UK and Sweden will make policy announcements. All are expected to keep their policies on hold, though the Swedish central bank's decision is seen as a close call, with some analysts expecting a rate hike.

Oil prices remained battered near their lowest levels in more than a year although they posted some gains on Wednesday from sharp selloff earlier this week after U.S. data showed strong demand for refined products.

U.S. crude futures were little changed at $47.38 per barrel, having fallen to $45.79 earlier this week, the lowest since late August 2017.

(Additional reporting by Tomo Uetake in TOKYO and Swati Pandey in SYDNEY; Editing by Sam Holmes)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

Canada will continue to stand up against Chinese human rights abuses, PM Trudeau says
World

Canada will continue to stand up against Chinese human rights abuses, PM Trudeau says

OTTAWA (Reuters) - Canadian Prime Minister Justin Trudeau on Friday said he will continue to stand up against China's "coercive diplomacy" and its human rights abuses in Hong Kong and Xinjiang after being rebuked by Beijing for similar comments earlier this week. "We will stand up loudly and clearly for human rights all around the world, whether it is talking about the situation faced by the Uighurs, whether it is talking about the very concerning situation in Hong Kong, whether it's calling out China for its coercive diplomacy," Trudeau said in a news conference. (Reporting by Steve Scherer and Julie Gordon, Editing by Franklin Paul)

Young people in France: 'Don't make us scapegoats for COVID-19'
World

Young people in France: 'Don't make us scapegoats for COVID-19'

By Caroline Pailliez PARIS (Reuters) - Solene Tissot, a 19-year-old student in Paris, will obey the curfew imposed to fight COVID-19, but she has one request for her country's leaders: don't blame young people for the second wave of the virus. "There's been this kind of assigning guilt to young people," she said on Friday, hours before the new curfew was to come into force in Paris and major French cities. "I reject that." After a lull over the summer, the rates of transmission of coronavirus are going up in many parts of Europe and officials have identified social interactions between young people as a source of the resurgence.

Wider Image: Jailed Philippine activist lays to rest her three-month-old baby
World

Wider Image: Jailed Philippine activist lays to rest her three-month-old baby

By Adrian Portugal and Eloisa Lopez MANILA (Reuters) - Jailed Philippine activist Reina Mae Nasino wanted to hold her three-month-old daughter for the last time before she was laid to rest on Friday but she could not. Heavily armed prison officials guarding her refused to uncuff her despite pleas from her family and human rights supporters, who have decried what they described as inhumane treatment of Nasino and other mothers in Philippine jails.