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Global markets and US stock futures fall after Fed rate hike

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U.S. stocks closed higher on Wednesday after the Federal Reserve hiked interest rates by an aggressive three-quarters of one percent. Asian markets were also mostly up on Thursday.

However, the recovery did not last long as investors worried about the impact that the sharp rise in interest rates will have on economic growth.

The Japanese Nikkei 225 (N225) and Korean Kospi (KOSPI) closed up 0.4% and 0.2% respectively. But China’s Shanghai Composite (SHCOMP) fell 0.6% late in the day. Hong Kong’s Hang Seng index was the region’s biggest loser, down 2.5% by late afternoon.

While US futures had risen during the early hours of Asia, they later reversed and as of 8:30 a.m. ET, Dow and Nasdaq futures were down 1.7% and 2.4 % respectively. S&P 500 futures fell about 2%.

Hang Seng Waterfall

Other central banks were in action on Thursday.

The Bank of England raised interest rates by 25 basis points in its fifth increase in borrowing costs since December and warned that UK inflation could top 11% in October.

The Swiss National Bank also raised rates for the first time in 15 years, defying the expectations of many economists. He raised rates from minus 0.75% to minus 0.25% in an effort to contain inflation.

The Hong Kong Monetary Authority (HKMA) raised its key rate on Thursday by 75 basis points to 2%.

Hong Kong’s monetary policy moves at the same pace as the Fed, as its currency is pegged to the US dollar within a tight range. The city is forced to raise rates to prevent increased outflows when the Fed tightens.

But rising interest rates could also derail Hong Kong’s still fragile economic recovery from the Covid-19 pandemic. Last month, the city lowered its growth forecast for 2022 to a range of 1% to 2%, from 2% to 3.5% previously.

HKMA chairman Eddie Yue said on Thursday that widening interest rate spreads between the US and Hong Kong markets could lead to increased outflows from the city, but Hong Kong has ample liquidity in the banking system. and strong capital reserves.

Wednesday’s U.S. rate hike, the biggest in 28 years, signaled to investors that the Fed is committed to cutting inflation rates. Fed Chairman Jerome Powell indicated that a similar hike could take place in July if economic data does not improve.

“Given the persistence of inflation and the Fed’s determination to bring it down, it seems likely that the July meeting could see another 75 [basis-point] rate hike,” said Kerry Craig, global market strategist for JP Morgan Asset Management, in a note Thursday.

“As in other parts of the world, emerging Asian markets are unable to escape inflationary pressures, particularly rising food prices, and we expect further policy tightening in the Asian central banks in response,” he said.

— Nicole Goodkind of CNN Business contributed to this report.

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