Asian shares declined Monday after the head of the U.S. Federal Reserve indicated high interest rates will continue for some time to curb inflation.
The plunge in early trading in Asia paralleled the drop on Wall Street, where the Dow Jones Industrial Average ended the week sinking more than 1,000 points. A slowdown in the U.S. is damaging to Asia’s export-reliant economies.
The message from Federal Reserve Chair Jerome Powell in a speech Friday had been expected, though some had wished for words that weren’t quite so clear.
“The market apparently was looking for something a little more neutral. After all the talk of a ‘pause’ and ‘pivot’, none of which ever made any sense with a Fed that has said several times it will keep hiking rates even if it means some economic pain, we are back to square one with a Fed outlook to keep tightening,” said Clifford Bennett, chief economist at ACY Securities.
“The Fed was always going to keep raising rates aggressively, but the market decided to price in a slowing in hikes, and even a reversal.”
Japan’s benchmark Nikkei 225 dipped 2.8% in morning trading to 27,831.06. Australia’s S&P/ASX 200 dropped 2.2% to 6,946.30. South Korea’s Kospi slipped 2.2% to 2,425.70. Hong Kong’s Hang Seng slid 1.1% to 19,949.62, while the Shanghai Composite edged down 0.5% to 3,220.04.
“The risk-off mood is playing out in the Asia’s session today as well, as bearish sentiments follow through with the sell-off in Wall Street to end last week while U.S. futures continue to suggest no reprieve into the new week,” said Yeap Jun Rong, market strategist at IG in Singapore.
Also weighing on regional sentiments are China’s economic data over the weekend, which seem to indicate a strong recovery will take time. China’s January-July industrial profits sank 1.1% from a year ago, amid fresh COVID-19 restrictions.
Powell spoke last week at an annual economic symposium in Jackson Hole, Wyoming, that has been the setting for market-moving Fed speeches in the past.
He said the Fed will likely need to keep interest rates high enough to slow the economy “for some time” in order to beat back the high inflation sweeping the country. The Fed has already hiked its key overnight interest rate four times this year in hopes of slowing the worst inflation in decades.
Higher rates help corral inflation, but they also hurt asset prices. Powell acknowledged the increases will hurt U.S. households and businesses, in perhaps an unspoken nod to the potential for a recession. But he also said the pain would be far greater if inflation were allowed to fester and that “we must keep at it until the job is done.”
The S&P 500 fell 141.46 points, or 3.4%, to 4,057.66. The benchmark index is now down almost 15% for the year. The Dow lost 1,008.38 points, or 3%, to close at 32,283.40. The last time the blue-chip average had a 1,000-point drop was in May. The Nasdaq slid 497.56 points, or 3.9%, to 12,141.71, its biggest drop since June. The Russell 2000 index of smaller companies fell 64.81 points, or 3.3%, to finish at 1,899.83.
In energy trading, benchmark U.S. crude rose 84 cents to $93.90 a barrel. Brent crude, the international standard, added 71 cents to $101.70 a barrel.
In currency trading, the U.S. dollar rose tp 138.56 Japanese yen from 137.75 yen. The euro was little changed at 99 cents.
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama