Tokyo led a rout of Asian shares today, mirroring big losses on Wall Street after the Federal Reserve (Fed) defied unprecedented pressure from US President Donald Trump and raised interest rates, sparking fears the move could choke economic growth.
The Nikkei plunged to a 15-month low as investors took fright over the pace of monetary tightening, with a slump triggered by the Dow’s fall to its lowest level of 2018 gathering pace.
The Fed raised rates for the fourth time this year – as expected – but markets reacted badly after chairman Jerome Powell said the bank would not shift course on reducing its balance sheet.
Investors had hoped for a less aggressive approach amid concern that global growth is slowing, while Powell played down the impact of recent market turmoil on the US economy.
“They think the Fed has completely misjudged the situation and now it’s just a matter of … trying to find an exit while you can,“ said Kyle Rodda, a market analyst at IG Group in Melbourne.
“We’re probably entering a stage now where markets have got it (in) their head that we’re preparing for quite sustained downside going into 2019.”
The Fed now projects only two interest rate increases, down from three previously, as it trimmed its forecast for US growth and inflation.
Stephen Innes, head of Asia-Pacific trade at OANDA, said the “Fed delivered a dovish hike, but clearly, there wasn’t enough affirmation in the statement that the Fed was close to pausing or ending their interest rate hike cycle sooner than expected”.
But some analysts urged caution.
“The market overreacted to the Fed, I think,“ said Shane Oliver, head of invest-ment strategy at AMP Capital Investors in Sydney.
“It is moving in a dovish direction and is on track for a pause in the first half of next year. Markets are being driven by fear rather than fundamentals.”
But the spillover from the rate hike continued to rattle investors in Asia today, deepening concern over global growth prospects which are already facing headwinds from Trump’s trade war with Beijing, a slowing Chinese economy, and potential turmoil from Britain quitting the European Union.
Japanese stocks also declined after the Bank of Japan left ultralow rates unchanged, with the threat of trade protectionism and slowing global growth casting a pall over the export-driven economy. A strong yen also put downward pressure on stocks with the dollar falling below ¥112.
Nissan dropped more than 2% after a Japanese court rejected prosecutors’ request to extend the detention of former Nissan chairman Carlos Ghosn after his arrest for financial misconduct.
Shanghai fell more than 0.5%, even after the People’s Bank of China said it would supply lower-cost liquidity for up to three years to banks willing to lend more to small companies, as policy makers aim to shore up the flagging economy.
Sydney closed more than 1% lower while Hong Kong and Seoul were down 0.9% each.
The equities slump spread to Europe. Around 1100 GMT, London’s benchmark FTSE 100 index was down 0.5% with losses capped by stronger-than-expected UK retail sales data and as traders looked ahead to the outcome of the Bank of England’s regular monetary policy meeting later today.
In the eurozone, Frankfurt’s DAX 30 shed 1.0% and the Paris CAC 40 slumped 1.5%.
