Asian equities slump

Brainard’s tightening comments dampen Asian markets

Hawkish comments around the Fed’s balance sheet runoff and 0.50% rate hikes threw a bucket of cold reality onto equity markets overnight. Fed Governor Lael Brainard, one of the most dovish FOMC members, said that a reduction of the Federal Reserve’s balance sheet, so-called quantitative tightening, could begin as early as next month and at a much faster pace than previous efforts. Additionally, Ms Brainard suggested the 0.50% hike was on the table as the Fed was prepared to take “strong action” to reign in inflationary pressures.

US yields firmed across the curve and Wall Street retreated. The S&P retreated by 1.25%, the Nasdaq, home to the most interest-rate sensitive stocks, slumped by 2.26%, while the Dow Jones lost 0.80%. US index futures have moved 0.10% lower in Asia.

Fears of a faster US monetary tightening on several fronts is also forcing Asian equity markets lower today, not helped by a massive drop in China’s Caixin Non-Manufacturing PMI and continued concerns around the Shanghai Covid-19 lockdown. Japan’s Nikkei 225 has fallen by 1.80%, with South Korea’s Kospi losing 0.90%.

In mainland China, the return from holiday sees the Shanghai Composite down 0.40%, with the CSI 300 falling by 0.50%. In Hong Kong, the Hang Seng has lost 1.55%. Singapore is 0.60% lower, Taiwan is down 0.85%, Kuala Lumpur has gained 0.35%, but Jakarta has lost 0.40%. Australian markets are also in retreat, the ASX 200 and All Ordinaries losing 0.80%.

Wall Street’s overnight losses will weigh on European equities, as will the detail of the new sanctions to be announced. How well European equities hold up will depend on the detail of those sanctions. This evening’s FOMC minutes, giving an insight into just how hawkish the committee might actually be, will be the main driver of Wall Street’s direction.

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