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Asian Stocks Down, Investors Continue to Digest Hawkish Fed Policy Decision

Stock Markets10 minutes ago (Jun 16, 2021 10:20PM ET)

(C) Reuters.

By Gina Lee – Asia Pacific stocks were mostly down Thursday morning, with U.S. counterparts extending losses. Investors continue to digest the latest U.S. Federal Reserve policy decision that indicated a pickup in the expected pace of its asset tapering.

Japan’s Nikkei 225 slid 1.14% by 10:11 PM ET (2:11 AM GMT) and South Korea’s KOSPI fell 0.75%.

In Australia, the ASX 200 was down 0.30%. Employment data for May released earlier in the day was better than expected, with the employment change at 115,200 while the unemployment rate fell to 5.1%.

Hong Kong’s Hang Seng Index inched down 0.05%.

China’s Shanghai Composite was down 0.21% while the Shenzhen Component was up 0.63%. Economic data released on Wednesday said that industrial production grew a worse-than-expected 8.8% year-on-year in May while the unemployment rate was 5.2%.

The benchmark 10-year Treasury yields jumped eight basis points, while five- and seven-year equivalents rose even more as investors scrambled to reprice the rate increases timing.

Emerging market currencies in Asia, led by the South Korean won, tumbled after the dollar recorded its biggest jump in a year. Crude oil fell as the strengthening dollar reduced the appeal of commodities priced in the currency while gold also tumbled.

Fed Chairman Jerome Powell downplayed any risk of an immediate interest rate increase as the central bank handed down the decision on Wednesday. He added that officials had begun a discussion about asset tapering and that two interest rate hikes are expected by the end of 2023.

However, Powell also appeared to temper the initial reaction to a so-called dot plot revision, reiterating that the Fed is not considering rate increases for now. The central bank will also continue asset purchases at a $120 billion monthly pace until “substantial further progress” had been made on employment and inflation.

Investors, who had hoped that the decision would provide clues as to when the Fed would begin to taper its unprecedented COVID-19 stimulus, were still caught off-guard by the faster-than-anticipated timetable.

“The move in the dot plot raised concerns that maybe even though the Fed now believes they are not going to be raising rates anytime soon that the timetable might be tightened up, might be moved forward… we’ve gotten to a point that has everyone feeling slightly less comfortable in assuming that the Fed is going to be able to be as patient for as long as they would like,” Natwest Markets co-head of global economics and chief U.S. economist Michelle Girard told Bloomberg.

With the Fed decision handed down, investors now await decisions from the Swiss National Bank and Norges Bank later in the day. The Bank of Japan will hand its decision down on Friday.

Meanwhile, U.S. Treasury Secretary Janet Yellen will testify on the federal budget before a House of Representatives panel later in the day.

Asian Stocks Down, Investors Continue to Digest Hawkish Fed Policy Decision

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