Asian Shares Retreat After Hawkish Fed Comments

Asian stocks tumbled on Wednesday, the U.S. dollar strengthened and bond yields surged as investors pondered the possibility of aggressive monetary tightening by the U.S. Federal Reserve to fight inflation.

Rate hike worries took center stage after Fed Governor Lael Brainard signaled the U.S. central bank would take a hawkish stance to combat inflation.

She expects a combination of interest rate rises and a rapid balance sheet runoff to take U.S. monetary policy to a more neutral position later this year.

Disappointing service sector data from China, the threat of new sanctions on Russia and a worsening Covid-19 situation in China also dented investor sentiment.

Chinese shares ended on a flat note as markets in mainland reopened after two days of public holidays.

The benchmark Shanghai Composite index finished marginally higher at 3,283.43 despite an extended lockdown in Shanghai and weak data showing activity in China’s services sector contracted at the steepest pace in two years in March.

Hong Kong’s Hang Seng index plunged 1.87 percent to close at 22,080.52 as tech stocks surrendered gains from two days of rebound.

Japan’s Nikkei index fell 1.58 percent to 27,350.30, marking its biggest daily fall since March 11, amid caution over corporate outlook and ahead of the announcement of fresh sanctions against Russia later today.

The United States and its allies will impose new sanctions on Russian banks and officials and ban new investment in Russia, the White House said.

SoftBank Group, Daikin Industries and Tokyo Electron fell 3-4 percent while Cosmo Energy Holdings soared 13.4 percent after activist investor City Index Eleventh and its associate took a 5.8 percent stake in the crude oil importer and refiner.

Australian markets ended lower, dragged down by technology stocks. Novonix and Block Inc both slumped around 6.9 percent amid concerns about accelerated interest rate hikes.

On the positive side, the big four banks all rose around 1 percent amid speculation the Reserve Bank of Australia will lift the cash rate by 15 bps as early as June. The benchmark S&P ASX 200 index slipped half a percent to settle at 7,490.10.

Seoul stocks fell notably, with the Kospi average ending down 0.88 percent at 2,735.03 on rate hike and Ukraine woes. Heavyweight Samsung Electronics fell 1 percent to hit a 16-month low while chipmaker SK Hynix lost 3 percent.

New Zealand shares fell after hawkish Fed comments, with the benchmark NZX-50 index closing 0.35 percent lower at 12,079.30. Meridian Energy lost 2.3 percent after saying it had temporarily reduced power available to the Tiwai Point smelter as a result of low levels in key South Island hydro lakes.

U.S. stocks ended lower overnight as new sanctions loomed on Russia and Fed Governor Lael Brainard, who is awaiting Senate confirmation to serve as the Fed’s vice chairwoman, called the task of reducing inflation pressures “paramount” and indicated an aggressive approach to shrinking the Fed’s balance sheet.

The Dow dropped 0.8 percent, the S&P 500 shed 1.3 percent and the tech-heavy Nasdaq Composite index lost 2.3 percent.