Asian equities fall after Fed minutes point to further interest rate rises

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Stocks across the Asia-Pacific region sold off on Thursday after the US Federal Reserve signalled its intent to resume interest rate rises to combat high inflation.

Hong Kong’s Hang Seng index led markets lower with a fall of 3 per cent, while Australia’s S&P/ASX 200 and Japan’s Topix shed more than 1 per cent. In China, the CSI 300 index of Shanghai- and Shenzhen-listed shares fell 0.7 per cent.

The falls followed hawkish comments from officials at the US central bank, with minutes from the June meeting of the rate-setting Federal Open Market Committee indicating that “almost all” participating officials believed additional increases in the Fed’s benchmark rate would be “appropriate”. They also characterised inflation as “unacceptably high”.

The June meeting had marked a break from the Fed’s relentless drive to bring down inflation from a multi-decade high last year. It was the first time the US central bank opted to keep the federal funds rate unchanged in 10 consecutive meetings.

On Wall Street, stocks finished the day lower following the minutes’ release, with the broad S&P 500 index and the tech-focused Nasdaq Composite both edging down 0.2 per cent. Ten-year US Treasury yields rose 0.02 percentage points to 3.9553 per cent in Asian trading on Thursday, having climbed 0.8 percentage points on Wednesday.

“Presuming the upcoming employment and consumer price index reports continue the themes that bothered [Fed officials] last month, we reckon the odds of a rate hike on July 26 have increased,” said Stephen Innes, managing partner at SPI Asset Management in Hong Kong.

US payrolls data is set to be released on Friday, with economists polled by Bloomberg tipping the pace of hiring to have slowed in June. However, the median forecast has underestimated jobs data for 14 consecutive months.

Sentiment in Hong Kong was also weighed by growing expectations of monetary easing that could squeeze Chinese banks’ returns. The Hang Seng Mainland Banks index was down nearly 6 per cent, with some of the banks trading ex-dividend.

“If you lower interest rates, it means banks’ profits will fall, and the renminbi will test lower levels as well,” said Louis Tse, founder of Hong Kong-based Wealthy Securities. “These factors are pushing investors to sell Chinese bank stocks.”

Futures markets tipped the S&P 500 to shed 0.2 per cent at the open on Wall Street, while the FTSE 100 was expected to fall 0.3 per cent in London.