Asian markets lower after hawkish Fed, fresh trade war fears

HONG KONG

Asian markets fell on June 14 after the Federal Reserve hiked interest rates and signaled a more hawkish tone for future moves, while US President Donald Trump stoked trade war fears by suggesting he will hit China with fresh tariffs.

After a keenly watched meeting, the U.S. central bank lifted borrowing costs, as expected, but indicated another two this year and four in 2019 as the world’s top economy continues to improve and inflation picks up.

While the Fed had earlier been tipped to announce three increases each year, there had been growing speculation that it would have to be more aggressive to keep a lid on prices and prevent the economy from boiling over.

Policymakers have been forced to change tack to take account of Trump’s huge tax cuts in December, which have already started to take effect.

But in a statement they stressed that rising rates were unlikely to hit the economy, which Fed chief Jerome Powell said was “in great shape.”

All three main indexes on Wall Street ended down on the prospect of higher borrowing costs, which would affect investment, while the dollar was slightly weaker as traders had largely priced in further hikes.

And Asian markets struggled, with signs of a slowdown in Chinese growth also denting sentiment after data showed factor output, retail sales and investment all missing forecasts.Hong Kong ended down 0.9 percent.

The city’s de facto central bank lifted its own interest rates to keep in line with the Fed.

The HKMA and US central bank’s monetary policies are linked owing to their currency peg.

Shanghai lost 0.2 percent, with analysts saying a People’s Bank of China decision not to follow the Fed’s rate rise indicated officials may be changing policy to combat slowing growth.

The central bank usually tracks U.S. hikes by lifting the amount it charges to lend to banks in order to prevent a flood of cash from the mainland into dollar investments.

“China’s new leadership was greeted by a much more challenging environment in 2018,” said Ting Lu, chief China economist at Nomura investment bank, adding Beijing would likely lower rates and pick up spending in coming months to shore up growth.

Tokyo ended one percent lower, Seoul fell 1.8 percent, Sydney dipped 0.1 percent and Singapore was off 1.1 percent.

Eyes now turn to the end of the European Central Bank’s meeting later in the day, with the future of its crisis-era stimulus on the agenda.

Trade war fears returned to the fore after Trump warned Beijing of possible fresh tariffs.

“China could be a little bit upset about trade because we are very strongly clamping down on trade,” he said in an interview aired on Fox News on June 13.

His comments come as he prepares to make a decision Friday on whether to impose measures on billions of dollars worth of goods from China.

“You will see over the next couple of weeks. They understand what we are doing,” he said.

China has pledged any tariffs will void progress made in recent talks and has drawn up its own list of US targets.

The comments are the latest in Trump’s ongoing disputes with the U.S.’s partners and come less than a week after he left a Group of Seven summit in tatters over trade differences.

“Trade is going to be far more unpredictable going forward and so far markets keep trying to shrug it off as if it isn’t going to happen,” Michael Every, head of financial markets research at Rabobank Group, told Bloomberg Television.

“When it finally happens maybe the markets will wake up and realise, wow, this is actually happening.”    

In early European trade London and Frankfurt each fell 0.6 percent, while Paris was 0.5 percent off.