SINGAPORE- Asian shares slid on Thursday after a surprise interest rate hike by Bank of Canada brought back fears that US rates could stay higher for longer and the Federal Reserve could remain hawkish when it meets next week.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.48 percent, while Japan’s Nikkei fell 1 percent. Australia’s S&P/ASX 200 index eased 0.29 percent.
The downbeat mood looked set to continue in Europe, with the Eurostoxx 50 futures off 0.30 percent, German DAX futures losing 0.31 percent and FTSE futures 0.06 percent lower.
Canada surprised markets on Wednesday by hiking its overnight rate to a 22-year high of 4.75 percent, with traders expecting another increase next month to cool an overheating economy and stubbornly high inflation.
The Bank of Canada (BoC) had been on hold since January to assess the impact of previous hikes.
The move from the BoC comes after Australia also stunned markets by hiking interest rates earlier this week. The Reserve Bank of Australia later warned of more rate hikes to temper rising pricing pressures.
Tapas Strickland, head of market economics at NAB, said the steps from BoC and RBA highlight that central banks aren’t done with the hiking cycle. “Next week’s US CPI will be pivotal for whether the Fed goes in June, or skips as widely telegraphed.”
Consumer inflation data on Tuesday is expected to show prices rose by 0.30 percent in May.
Markets are now pricing in a 64 percent chance of the Fed standing pat next week, compared with 78 percent just a day earlier, the CME FedWatch tool showed. Traders are pricing in a 25 basis point hike in July.
Economists polled by Reuters expect the Fed to not raise rates at its June 13-14 meeting, but a significant minority expects at least one more hike this year.
More than 90 percent of economists, 78 of 86, polled during June 2-7 said the Federal Open Market Committee would hold its federal funds rate at 5.00 percent-5.25 percent.
China shares eased 0.12 percent, while Hong Kong’s Hang Seng Index fell 0.57 percent.
Data on Wednesday showed May exports in China slumped 7.5 percent year-on-year, the biggest decline since January and far below the 0.4 percent decline analysts expected.
