Asia stocks slide as Fed minutes show rate hike bias

TOKYO - Asia stock markets fell on Thursday, extending a decline in global equities, after the US Federal Reserve

confirmed its hawkish stance,

while an escalating trade battle between China and the United States also dampened sentiment.

Singapore’s Straits Times Index was down 0.8 per cent at midday.

Japan’s Nikkei share average slumped 1.75 cent, continuing its retreat from 33-year highs.

Hong Kong’s Hang Seng Index tumbled 3.1 per cent, while mainland China blue chips fell 0.5 per cent lower.

Australia’s stock benchmark slid 1.3 per cent and South Korean shares retreated 0.6 per cent.

US e-mini stock futures pointed to a 0.1 per cent lower restart for the S&P 500, following its overnight 0.2 per cent decline.

“The market has no doubts now about the Fed’s policy stance, which is about as hawkish as it can get,” said Nomura Securities chief strategist Naka Matsuzawa. “They are ready to hike multiple times, and the bar is quite low.”

While almost all Fed officials agreed to hold interest rates steady in June, minutes of the meeting released on Wednesday showed the vast majority expected policy would eventually need to tighten further.

Money market traders place 85 per cent odds on a quarter point hike on July 26, and about a 50-50 chance of another by November.

Meanwhile,

US Treasury Secretary Janet Yellen begins a trip to China

just as Beijing restricted exports on metals used in semiconductors, adding that the controls were “just a start”.

“Sentiment has soured for equity bulls as Sino-US relations take another step backwards and investors adjusted to the fact that the Fed remains more hawkish than hoped,” said City Index market analyst Matt Simpson.

“The Fed’s decision to pause was not actually unanimous and most members are up for further hikes, so this could cap upside over the near term”, although the scope of equity declines so far suggests it could be “more of a bump in the road as opposed to blood on the streets”, he added.

Ten-year Treasury yields climbed as high as 3.957 per cent in Tokyo trading, after surging some nine basis points overnight.

The US dollar index – which measures the currency against six peers, including the euro and yen – extended Wednesday’s 0.23 per cent to be up as much as 0.09 per cent to 103.42 in Asian trading.

Against the yen, though, the dollar’s advances were conspicuously subdued, considering the currency pair’s traditional close relationship with long-term US yields.

The dollar slipped 0.22 per cent to 144.335 yen on Thursday, undoing all of the previous day’s 0.13 per cent advance.

Japanese officials have sounded almost daily warnings over yen weakness as it approached the 145 level that triggered intervention in 2022. The dollar briefly touched 145.07 yen on Friday.

Meanwhile, crude oil was little changed in Asian trading, as the prospect of tighter supply with output cuts from Saudi Arabia and Russia and a bigger-than-expected drop in US crude stocks were offset by worries over a sluggish demand recovery in China.

Brent crude futures were down two cents to US$76.63 a barrel after settling up 0.5 per cent the previous day.

US West Texas Intermediate crude was at US$71.90 a barrel, up 11 cents, or 0.2 per cent, after closing 2.9 per cent higher in post-July 4 holiday trade on Wednesday to catch up with Brent’s gains earlier in the week. REUTERS, BLOOMBERG