HONG KONG- Asian stocks followed Wall Street’s lead on Thursday, dipping across the board as investors interpreted the US Federal Reserve’s latest policy statements as signaling higher-for-longer interest rates.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.6 percent, with the Hong Kong benchmark shedding 0.8 percent. Japan’s Nikkei fell 1 percent.
The yield on two-year US Treasury notes rose to a 17-year high of 5.1970 percent.
“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.
The overall tone of the Fed’s latest meeting was not overly hawkish but there were two surprises, he said.
Forecasts for 2024 were slightly higher than generally expected and Fed statements implied the view that macroeconomic growth would hold up even if with rates staying higher for longer, Luk said.
The US central bank held interest rates on Wednesday and projected an increase by year-end, saying monetary policy is likely to be significantly tighter through 2024 than previously thought.
The median forecast for the federal funds rate is 5.1 percent by year-end, versus 4.6 percent estimated in June.
Even as inflation slows for the rest of 2023 and in coming years, the Fed anticipates only modest initial reductions to its policy rate.
Upward revisions to US policymakers’ median rate forecasts for the next couple of years triggered a rebound in the US dollar, pushed US Treasury yields to multi-year highs, flattened the yield curve and sent stocks tumbling.
The dollar index which measures the currency against a basket of rivals, rose as high as 105.59 on Thursday, its strongest since March 9, pushing the yen close to its weakest since November.
The yield on benchmark 10-year Treasury notes rose to 4.4310 percent , a 16-year peak.
