Asian stocks mixed as traders digest Fed tightening

Equities in Asia declined on Thursday as traders considered what the Federal Reserve’s rate increase and accompanying comments signalled about the future path of US borrowing costs.

Japan’s Topix shed 0.4 per cent and Australia’s S&P/ASX 200 dropped 0.6 per cent, while Hong Kong’s Hang Seng index added 0.6 per cent, South Korea’s Kospi was up 0.1 per cent and China’s CSI 300 gained 0.4 per cent.

On Wednesday, the Fed increased its benchmark lending rate 0.25 percentage points to a target range of 4.75 per cent to 5 per cent.

Traders have been split on whether a statement from the central bank, which omitted previous references to the need for “ongoing” rate rises, signalled the Fed was close to the end of its tightening cycle.

“The Fed still feels additional tightening may be needed, but downshifted . . . removing the plurality on the amount of tightening remaining,” said Tai Hui, chief market strategist for Asia-Pacific at JPMorgan Asset Management.

“Balancing the Fed’s desire to keep its pressure on inflation, and the reality of tightening credit condition and bank lending appetite, we think the Fed could still deliver one more 25 bps hike in May.”

The Fed has a tough decision to make. Inflation remains high, but the collapse of technology-focused lender Silicon Valley Bank and the UBS takeover of Credit Suisse over the weekend have caused turmoil in the global financial system.

The ructions have spread to other regional lenders in the US, with San Francisco-based First Republic this week hiring advisers to explore options including a sale.

US Treasuries advanced on Thursday, with the yield on the 10-year note falling 0.03 percentage points to 3.48 per cent. The yield on the two-year note, which is more closely linked to short-term interest rate expectations, declined 0.01 percentage points to 3.98 per cent. Yields move inversely to price.

Pricing in futures markets suggests investors now expect US rates to peak at about 4.9 per cent in May, before falling to 4.3 per cent by the end of the year.

The yen, won and renminbi each added 0.4 per cent against the dollar to trade at ¥130.87, Won1291.80 and Rmb6.8553, respectively.

Oil prices declined as traders digested the Fed increase. West Texas Intermediate, the US benchmark, shed 0.7 per cent in the morning to trade at $70.41 per barrel, putting it on track to break a three-session winning streak.