Asian equities slid sharply on Thursday as investors reacted to hawkish signals from the US Federal Reserve, which indicated a slower pace of easing in 2025 due to persistent inflationary pressures.
While the rate cut decision was in with expectations, market sentiment soured after the Fed signalled it plans only two rate cuts in 2025, down from the four previously projected cuts.
The Fed’s shift lifted the US Dollar Index to a two-year high and pushed benchmark US Treasury yields to a seven-month peak, while gold remained below $2,600 per ounce.
Asian stocks feel the heat
Market sentiments across the Asian continent were dampened as the Fed forecasted only two more reductions next year.
Japan’s Nikkei dropped 1% in early trade, with the yen hovering near a one-month low against the dollar as markets.
After the lunch break, Investors weighed the Bank of Japan’s decision to maintain its policy rate at 0.25% for the third consecutive meeting.
The Nikkei 225 narrowed its losses after the lunch break, trading 0.63% lower, while the broader Topix index was down 0.49%.
Following the announcement, the Japanese yen softened to 155.40 against the dollar, down from 154.60 before the decision.
Hong Kong’s Hang Seng fell nearly 1%, driven by selling in financial and technology stocks.
The Hong Kong Monetary Authority (HKMA) implemented a 25-basis-point interest rate cut on Thursday, aligning with the U.S. Federal Reserve’s move.
In China, the Shanghai Composite declined 0.3% to 3,371, following reports that US authorities may ban China’s TP-Link Technology Co over national security concerns.
However, losses were limited by optimism surrounding Beijing’s anticipated plans for increased fiscal spending in 2025, which buoyed investor sentiment.
South Korea’s Kospi was back in the red on Thursday after showing small recovery on Wednesday.
The index tumbled 1.6%, led by losses in heavyweight technology stocks.
US markets on Wednesday
Overnight in the US, the Dow Jones Industrial Average plunged 1,123.03 points, or 2.58%, to close at 42,326.87, marking its first 10-day losing streak since 1974.
The S&P 500 dropped 2.95% to 5,872.16, while the Nasdaq Composite fell 3.56% to 19,392.69.
The sell-off followed the Federal Reserve’s decision to cut its overnight borrowing rate by 25 basis points to a target range of 4.25% to 4.5%.
With the widely expected rate cut delivered, the spotlight of the Federal Reserve’s announcement shifted to its updated economic projections.
The latest forecasts indicate interest rates will range between 3.75% and 4.0% by the end of 2025, compared to the previously projected range of 3.25% to 3.50% in September.
The adjustment reflects expectations of hotter inflation in 2025, with consumer price growth now projected at 2.5%, up from the 2.1% forecast in September.
Fed Chair Jerome Powell, speaking during the post-meeting press conference, emphasised that the central bank is seeking additional progress on inflation before advancing with further rate cuts.
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