As The Fed Raise Relief Surge Fades, Asian Stocks Plummet
On Thursday, Asian markets fell, and the dollar recovered its footing as investors digested the implications of rising inflation and a policy tightening forecast from global central banks.
Stock futures in Europe hinted at a slightly higher beginning, with pan-region Euro Stoxx 50 futures and German DAX futures both up around 0.4 percent a day after the European Central Bank pledged further support to calm a bond market sell-off. The FTSE futures index was down 0.1 percent ahead of the Bank of England’s projected rate hike to combat inflation. The drop in Asian stocks came after the U.S. Federal Reserve announced the largest interest rate rise since 1994 on Wednesday; they raised the target federal funds rate by 75 basis points to a range of 1.5 percent to 1.75 percent. Officials at the Federal Reserve expect further gradual increases this year; the federal funds rate should reach 3.4 percent by the end of the year.
What is Concerning the Investors?
While market investors applauded the widely anticipated decision at first, growing concern eroded profits throughout the trading day. According to Fed predictions, U.S. economic growth will decline to a below-trend pace of 1.7 percent in 2024, and policymakers will lower interest rates.
Rob Carnell, ING’s head of research and chief economist for Asia-Pacific, mentioned that he keeps telling himself and others that they’re lousy at forecasting and have no idea where the economy is heading. So, they should take no consolation in these projections that GDP growth would be 1.7 percent this year and next year; since their economy has been running like a locomotive until very recently.
On Friday, data indicated a stronger-than-expected rise in U.S. inflation in May. A University of Michigan survey showed consumers’ five-year inflation forecasts soared to their highest level since June 2008.
In afternoon trade, MSCI’s broadest index of Asia-Pacific equities outside Japan fell 0.46 percent, erasing earlier gains. Australian stocks declined 0.20 percent, while Chinese blue-chip stocks dropped 0.62 percent. The Hang Seng index in Hong Kong declined by 1.31 percent. The Nikkei, which had gained as much as 2.38 percent earlier, was last 0.40 percent higher in Tokyo.
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