Asian Stocks Down, Impact of Surprise Hawkish Fed Policy Decision Continues
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By Gina Lee
Investing.com – Asia Pacific stocks were mostly down Monday morning. Investors turned away from the reflation trade thanks to the U.S. Federal Reserve’s surprise hawkish turn in its latest policy decision.
China’s Shanghai Composite was up 0.27% by 10:30 PM ET (2:30 AM GMT) and the Shenzhen Component inched up 0.04%. The People’s Bank of China set its loan prime rate earlier in the day.
Hong Kong’s Hang Seng Index was down 0.66%.
Japan’s Nikkei 225 tumbled 3.59% in its biggest slide in more than a month. South Korea’s KOSPI fell 1.09%.
In Australia, the ASX 200 slid 1.85%, after the release of May retail sales figures earlier in the day.
U.S. shares fell, with the benchmark S&P 500 retreating during the previous session. Commodities such as copper also dropped as the dollar climbed to a two-month high.
Investors continue to digest the impact of the Fed policy decision, handed down during the previous week. A flattening Treasury yield curve was also indicative of retreating reflation bets, with the benchmark 10-year yield declining to 1.42% and the 30-year rate falling below 2%.
Shorter maturity yields climbed upwards, however, after St. Louis Fed President James Bullard said inflation risks may warrant higher interest rates in 2022. A slew of Bullard's colleagues, including Dallas Fed President Robert Kaplan and New York Fed President John Williams (NYSE:WMB), are also due to speak throughout the week.
Investors will also be looking to Fed Chairman Jerome Powell’s testimony before a House of Representatives subcommittee hearing on Tuesday. Powell will update the committee on the Fed’s COVID-19 emergency lending and its asset purchase programs.
“The shift toward tapering and a pull forward in first rate hikes may cause bouts of nervousness in markets with shares vulnerable to a decent correction,” AMP (OTC:AMLTF) Capital head of investment strategy Shane Oliver said in a note.
“But note that tapering is not monetary tightening, it’s just slower easing and rate hikes are still a fair way off in most developed countries,” the note added.
In other central bank news, European Central Bank President Christine Lagarde will address the European Parliament later in the day, while the Bank of England will hand down its policy decision on Thursday.
Meanwhile, oil climbed to about $72 a barrel. Talks to revive Iran’s 2015 nuclear deal hit the pause button after Ebrahim Raisi won a landslide victory in Iran's presidential election during the previous week.
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