Asian stocks plunge on fears of US interest rate hike

SINGAPORE – USD rises after Fed Chairman Jerome Powell’s hawkish comments raise the likelihood that the US central bank will return to sharp rate hikes to combat persistent inflation Meanwhile, Asian stocks fell sharply on Wednesday.

Powell said on the first day of his bi-annual two-day testimony on monetary policy before Congress that the Fed will likely need to raise interest rates more than expected in response to recent strong data. .

Mr. Powell’s hawkish remarks sent U.S. stocks plummeting and the mood in Asian trade continued to be risk-off.

MSCI’s broadest index of Asia-Pacific stocks ex-Japan fell 1.45%, Australia’s S&P/ASX 200 index fell 0.93% and South Korea’s Kospi fell 1.3%. Japan’s Nikkei rose 0.1%.

Chinese stocks fell 0.4% and Hong Kong’s Hang Seng Index fell 2.3%.

Singapore’s Straits Times Index fell 0.7% at 10:59 am local time.

After a series of large rate hikes in 2022, the Fed has raised interest rates by 25 basis points at its last two meetings, but resilient economic data from early 2023 onwards will see the central bank again push for bigger hikes. Fears of a return to rate hikes grew.

Those concerns came true when Powell said he was “ready to accelerate the pace of rate hikes if the overall data show that a faster tightening is warranted.”

The chances of a 50 basis point rate hike by the Federal Reserve on March 21-22 have risen nearly 70% from around 30% the previous day, according to CME’s FedWatch tool.

“Powell basically opened the door to a 50 basis point rate hike,” said Chris Weston, Pepperstone’s head of research.

“He gave the Fed the option, but I suspect he would hate to do so because it doesn’t look good to change tactics when it’s just down to the 25 basis point increment.”

Short-term Treasury yields continued their rally on Wednesday, with 2-year Treasury yields typically moving in step with interest rate expectations, rising 2.7 basis points to 5.038%, the highest since mid-2007.

A notable part of the U.S. Treasury yield curve, which measures the difference between 2-year and 10-year U.S. Treasury yields, fell by -106 basis points, the largest since August 1981, according to Refinitiv data. was a value. A reversal like this is considered a reliable indicator of a recession.

The spotlight will be on Friday’s US jobs report and next week’s inflation rate, which will determine further moves by the Fed.

In currency markets, the US dollar hit a three-month high while the euro rose 0.01% to US$1.0548.

The Japanese yen fell 0.15% to $137.33 to the dollar, while the pound rose 0.06% to trade at US$1.1834.

US crude fell 0.04% to US$77.55 a barrel while Brent rose 0.06% to US$83.34.Reuters