On Thursday, Asian markets fell broadly in line with Wall Street’s performance as traders perceived the most recent U.S. Federal Reserve policy comments as indicating higher interest rates for the foreseeable future.
The Hong Kong benchmark fell 0.8%, while MSCI’s largest index of Asia-Pacific shares outside of Japan fell 0.6%. Nikkei lost 1% in Japan.
Increasing to 5.1970%, the yield on two-year US Treasury notes reached a 17-year high.
“People were picking and choosing what they wanted to look at, which was obviously more on the negative side, so I think sentiment today would lean more towards the red end,” said Ben Luk, senior multi-asset strategist at State Street Global Markets.
Although the Fed’s most recent meeting did not have an unusually aggressive overall tone, he noted there were two surprises.
Forecasts for 2024 were marginally higher than anticipated, and Fed remarks suggested that the Fed believed GDP growth would persist even if rates were higher for a longer period of time, according to Luk.
The U.S. central bank kept interest rates steady on Wednesday and predicted a raise by year’s end, noting that monetary policy will likely be much tighter than originally anticipated through 2024.
By year’s end, the federal funds rate is expected to be 5.1%, up from the June projection of 4.6%.
The Fed predicts relatively modest first cuts to its policy rate, even as inflation declines for the remainder of 2023 and the following years.
The U.S. currency recovered, U.S. Treasury rates rose to multi-year highs, the yield curve flattened, and equities plunged as a result of upward revisions to U.S. officials’ median rate predictions for the upcoming two years.
The dollar index, which compares the value of one currency to a basket of its competitors, increased to 105.59 on Thursday, its highest level since March 9, causing the yen to drop to its lowest level since November.
The benchmark 10-year Treasury note yield increased to 4.4310%, reaching a 16-year high.
The main U.S. stock indices declined. The S&P 500 e-mini futures were down 0.12% at the start of Asia time.
Investors are currently anticipating the monetary policy decisions that Taiwan, the Philippines, and Indonesia will make on Thursday. Asian markets will also be guided by the Bank of England’s well considered decision.