Asian markets experienced a slump on Thursday as the Federal Reserve signaled that interest rates would remain high for a longer period. The MSCI China Index fell by 1.4%, marking its lowest close since November, amid ongoing pessimism about the nation's economic recovery. Tech stocks in Hong Kong followed suit, sliding over 2% in the wake of Wall Street losses, with contracts for U.S. benchmarks also drifting lower in Asian trading.
The dollar rallied against major currencies, but remained flat against the yen, which traded around 148 per dollar after weakening on Wednesday to its lowest level since November. The stronger dollar added pressure on the yen, creating potential for official support for the Japanese currency. "Japan's Ministry of Finance is likely to intervene in large fashion at 150 per dollar because it is hard to tolerate more inflationary pressure," said John Vail, chief global strategist for Nikko Asset Management Co. in Tokyo.
The Federal Reserve maintained its target range at 5.25% to 5.5%, while updated quarterly projections showed that 12 out of 19 officials favored another rate hike in 2023. Policymakers also anticipate less easing next year, with the median forecast for the federal funds rate at 5.1% by year-end, up from 4.6% when projections were last updated in June.
"The dot plot was more hawkish than expected," Vail added, referring to the Fed's graphical representation of its officials' outlooks for where they expect short-term interest rates to be in the future.
Meanwhile, Chinese property developers emerged as a bright spot in Asia following new measures to ease home-buying rules. James Wang, Head of China Strategy at UBS Group AG (SIX:UBSG)'s investment research unit, suggested on Bloomberg Television that signs of improvement in Chinese real estate could spur Chinese stocks higher, given the steep declines this year. "If property sales in China can stabilize and improve a little bit from where we are, and people see that trend continue, that makes investors feel a lot better," Wang said.
In the bond market, Australian and New Zealand bond yields surged, tracking moves in Treasuries as rates hit multi-year highs. Treasury two-year yields, which are more sensitive to imminent Fed moves, reached their highest level since 2006 and inched higher on Thursday.
In commodities, spot gold fell 0.1% to $1,928.35 an ounce. Oil's rally took a breather as a smaller-than-expected drop in U.S. crude stockpiles bolstered technical resistance to further gains, with West Texas Intermediate's futures dropping below $90 a barrel.
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