Asian shares fall after Fed comments on interest rates and Wall Street declines

TOKYO (AP) — Asian stocks fell on Monday after the head of the U.S. Federal Reserve said high interest rates will continue for some time to curb inflation.

The plunge in Asia paralleled the decline on Wall Street, where the Dow Jones Industrial Average ended the week plunging more than 1,000 points. A slowdown in the US is hurting Asia’s export-dependent economies. Oil prices rose.

The message from Federal Reserve Chairman Jerome Powell in a speech on Friday was expected, though some wished it had been less emphatic.

“The market was obviously looking for something a little more neutral. After all the talk of “pause” and “pivot,” none of which made sense with a Fed that has repeatedly said it will keep interest rates hiking even if it means some financial pain, we’re back at square one with The Fed’s outlook will continue to tighten,” said Clifford Bennett, chief economist at ACY Securities.

“The Fed was always going to continue raising rates aggressively, but the market decided to slow the hikes, even with a reversal.”

Japan’s benchmark Nikkei 225 was down 2.7 percent in afternoon trade at 27,881.87. Australia’s S&P/ASX 200 fell 2.0% to 6,965.50. South Korea’s Kospi fell 2.2 percent to 2,427.28. Hong Kong’s Hang Seng fell 0.8 percent to 20,004.49, while the Shanghai Composite recovered from earlier losses to rise less than 0.1 percent to 3,237.82.

“Risk-on sentiment is also on display in today’s Asian session as bearish sentiment follows the sell-off on Wall Street ending last week, while US futures continue to suggest no reprieve for the new week” , said Yeap. Jun Rong, market strategist at IG in Singapore.

Also weighing on regional sentiment were China’s economic data over the weekend, which appeared to indicate that a strong recovery will take time. China’s January-July industrial profits fell 1.1 percent from a year ago amid new COVID-19 restrictions.

Powell spoke last week at an annual economic symposium in Jackson Hole, Wyoming, which has been the setting for market-moving Fed speeches in the past.

He said the Fed would likely need to keep interest rates high enough to slow the economy “for some time” in order to reverse the high inflation sweeping the country. The Fed has already raised its key overnight rate four times this year in hopes of slowing the worst inflation in decades.

Higher interest rates help herd inflation, but they also hurt asset prices. Powell acknowledged that the hikes would hurt US households and businesses, perhaps in an unspoken nod to the possibility of a recession. But he also said the pain would be much greater if inflation was allowed to subside and that “we have to keep it until the job is done”.

The S&P 500 fell 141.46 points, or 3.4%, to 4,057.66. The benchmark is now down nearly 15% for the year. The Dow lost 1,008.38 points, or 3%, to close at 32,283.40. The last time the blue-chip average fell 1,000 points was in May. The Nasdaq fell 497.56 points, or 3.9 percent, to 12,141.71, its biggest drop since June. The Russell 2000 index of smaller companies fell 64.81 points, or 3.3%, to close at 1,899.83.

In energy trading, benchmark U.S. crude rose 67 cents to $93.73 a barrel. Brent crude, the international standard, added 36 cents to $101.35 a barrel.

In currency trading, the US dollar rose to 138.80 Japanese yen from 137.75 yen. The euro was little changed at 99 cents.

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Yuri Kageyama is on Twitter https://twitter.com/yurikageyama

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