Asian markets reel from fears of likely Fed rate hike

Passersby are reflected on a stock quotation board at a brokerage in Tokyo, Japan on Sept 29, 2015.
Passersby are reflected on a stock quotation board at a brokerage in Tokyo, Japan on Sept 29, 2015. PHOTO: REUTERS

Uncertainty over United States interest rates sent major Asian markets tumbling yesterday.

Investors were spooked by signals from US Federal Reserve officials on Thursday that rates may rise as soon as next month.

Higher rates are feared on two fronts - that they could spark short-term financial market volatility while crimping economic activity by making loans more expensive.

That was enough to send Wall Street down 1.44 per cent on Thursday, its worst rout in over a month.

Asian markets followed suit, with Singapore's Straits Times Index dropping 1.13 per cent to 2,925.68. Shanghai shed 1.43 per cent, Hong Kong's Hang Seng Index was down 2.15 per cent, while the Nikkei in Tokyo lost 0.51 per cent.

The trigger was a speech from New York Fed president William Dudley, who said on Thursday: "I think it is quite possible that the conditions the (Federal Reserve) Committee has established to begin to normalise monetary policy could soon be satisfied."

On Wednesday, Fed chairman Janet Yellen had said a hike in December is a "live possibility".

IG London market analyst David Madden told The Straits Times that this added to the already downbeat sentiment over Asia's growth outlook. "We have relatively soft economic data coming out of China this week," he said, referring to October's bank loans of 513.6 billion yuan (S$114.4 billion), which were around half of September's 1.05 trillion yuan.

"Even though there has been speculation of stimulus packages by China, nothing was actually announced, and the stimulus will have to be massive to turn the markets around."

In what is becoming a predictable vicious circle, commodity prices plummeted amid fears of China's slowdown, which in turn hurt the stock markets further.

Benchmark Brent futures fell to US$44.04 a barrel on Thursday, testing a 61/2-year low, before recovering slightly.

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A version of this article appeared in the print edition of The Straits Times on November 14, 2015, with the headline 'Asian markets reel from fears of likely Fed rate hike'. Print Edition | Subscribe