By Ambar Warrick
Investing.com-- Asian stock markets fell sharply on Thursday after the U.S. Federal Reserve hiked interest rates and vowed to tighten monetary policy aggressively to curb rampant inflation.
Technology-heavy indexes were the worst hit, tracking a similar overnight trend on Wall Street as investors discounted future earnings from the sector against a stronger dollar and elevated yields.
Hong Kong’s Hang Seng index slumped 2.1%, while the Taiwan Weighted index shed 1.1%. South Korea’s KOSPI also fell by nearly 1%.
The Federal Reserve hiked rates by 75 basis points for a third consecutive meeting on Wednesday, with Chairman Jerome Powell promising more steep rate hikes to combat inflation reaching a 40-year high. The bank now sees its benchmark interest rate reaching 4.4% by end-2022, and rising even further in 2023.
Powell also signaled that the bank was willing to risk headwinds to economic growth and the labor market from rising interest rates, as it looks to rein in inflation.
The Fed’s tone was seen as far more hawkish than expected, indicating that pressure on financial markets from elevated yields is set to continue for at least the next year.
The dollar shot up to an over 20-year high after the hike, while U.S. 10-year Treasury yields rose to new 11-year peaks.
Wall Street indexes also fell overnight, giving Asian stocks a weak lead-in. U.S. futures indicated that weakness in the stock market is likely to continue.
Further denting appetite for risk-driven assets, a potential escalation in the Russia-Ukraine conflict also weighed on overall market sentiment, after President Vladimir Putin called for a partial mobilization of troops and threatened nuclear action.
Japan’s Nikkei 225 index fell 0.6%, even as the Bank of Japan held interest rates at ultra-low levels and maintained its dovish outlook. The world’s third-largest economy is facing elevated inflation due to a weakening yen and the rising cost of commodity imports.
Indonesian stocks were among the few outliers for the day, rising 0.2% ahead of a central bank meeting later today. Bank Indonesia is widely expected to maintain interest rates at a 20-month high.