SYDNEY- Asian equities fell to a three-week low on Thursday after the US Federal Reserve stunned investors by signaling it might raise interest rates at a much faster pace than assumed, sending bond yields and the dollar sharply higher.
The fallout in equities was softer, but enough to push MSCI’s broadest index of Asia-Pacific shares outside Japan down about 0.6 percent to its lowest since late May.
Japan’s Nikkei fell 1 percent and S&P 500 futurewere 0.4 percent lower in Asian trade.
Emerging markets might not hold up as well, as they are vulnerable to the chance that early US rate hikes suck funds out of riskier assets – though selling pressure was only moderate in Asia and EM currencies stabilized.
“The new Fed ‘dot plot’ indicating that the median FOMC member now forecasts two Fed rate hikes in 2023, versus none in the March iteration, represented the hawkish surprise out of the June Fed meeting,” said Ray Attrill, head of FX strategy at NAB.
The Fed forecasts, or dot plots, showed 13 of the 18 person policy board saw rates rising in 2023 versus only six previously, while seven tipped a first move in 2022.
While the plots are not commitments and have a poor track record of predicting rates, the sudden shift was still a shock.
The Fed rubbed salt into the wound by signaling it would now be considering whether to taper its asset purchases meeting by meeting and downgraded the risk from the pandemic given progress in vaccination.
Analysts at JPMorgan noted Chair Jerome Powell was not as aggressive in his media conference. – Reuters
