The spectre of higher borrowing costs hit stocks while boosting U.S. bond yields and the dollar. The overall market reaction was short-lived, however. (Image: Reuters)
Asian shares eased on Thursday after the Federal Reserve raised interest rates and took a more hawkish tone in forecasting a slightly faster pace of tightening, while concerns about U.S.-China trade frictions kept investors on edge. Chinese retail sales and urban investment data were surprisingly weak, pouring cold water on investors’ risk appetite and adding to uncertainty over the world’s second-largest economy after its central bank unexpectedly left interest rates on hold. MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.5 percent. South Korea’s KOSPI was off 1.2 percent, while Hong Kong’s Hang Seng dipped 0.2 percent. Japan’s Nikkei shed 0.4 percent.
The Fed raised its benchmark overnight lending rate a quarter of a percentage point to a range of 1.75 percent to 2 percent, as expected, on the back of strong U.S. economic growth. Fed policymakers’ rates projections pointed to two additional hikes by the end of this year compared to one previously, based on board members’ median forecast. “The Fed was slightly more hawkish. But at the same time, the Fed is raising rates because of a strong economy and not because of the need to contain inflation. So that might have helped curb market reactions,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management.
The spectre of higher borrowing costs hit stocks while boosting U.S. bond yields and the dollar. The overall market reaction was short-lived, however. “When you look more closely, only eight board members saw two more hikes by the end of year, compared to seven who saw one hike. In March it was seven versus eight. So you are talking about a change