Asia report: Markets down after Fed hike as China services disappoint

Stocks in Asia were weaker across the board on Thursday, after investors woke up to another 75-basis point rate hike from the US Federal Reserve, with more tightening on the horizon.

In Japan, markets were closed for the annual celebration of Culture Day, as the yen weakened 0.28% against the dollar to last trade at JPY 148.31.

On the mainland, the Shanghai Composite was down 0.19% at 2,997.81, and the technology-centric Shenzhen Component was 0.34% weaker at 10,840.06.

China’s private services sector contracted in October, slowing to a six-month low, according to fresh data released earlier.

The Caixin services purchasing managers’ index (PMI) came in at 48.4 for the month, down from 49.3 in September and well below the 50-point level that separates expansion from contraction.

It was broadly in line with Beijing’s official non-manufacturing PMI released earlier this week, which came in at 48.7 for October.

Official data in China is seen to represent large, state-affiliated industry, while the Caixin readings are more reflective of small-to-medium enterprise and commerce.

“The Caixin PMI was slightly worse than expected, owing to local governments zealously enforcing Covid-zero policy during the 20th Party Congress period,” said Duncan Wrigley at Pantheon Macroeconomics.

“Business activity fell to 48.4 in October, from 49.3 in September - this is much down from the reopening bounce in June to August, when it averaged 55.0.”

Wrigley said the approval of the ‘CanSino’ nasal vaccine for rollout in 13 cities in Jiangsu province, after its launch in Shanghai in late October, offered “some hope” for an exit strategy.

“The key issues will be its take-up and efficacy, especially among the elderly.

“Providing all goes well, we think that China’s leadership will feel comfortable about allowing pilot regions to ease as soon as March.

“Until then, the service sector will remain weak.”

South Korea’s Kospi was 0.33% lower at 2,329.17, while the Hang Seng Index in Hong Kong tumbled 3.08% to 15,339.49.

The blue-chip technology stocks were on the back foot in Seoul, with Samsung Electronics down 0.67%, and SK Hynix losing 2.13%.

Sentiment in the region was dampened by a sell-off on Wall Street overnight, where the Dow Jones Industrial Average lost more than 500 points by the close after a 75-basis point rate hike from Fed policymakers.

The rise in the Fed funds rate target took it to levels not seen since 2007, with chairman Jerome Powell signalling that further tightening was still needed.

Rhetoric in the Fed’s announcement did, however, suggest that committee members were mindful of the fact that the effect of a change in monetary policy can lag the implementation of the policy, meaning they could back off their aggressive tightening stance before inflation falls back to target.

“In the presser, Powell said that at some point it will become appropriate to slow the pace of hikes, and that point may come as soon as December,” said Neil Wilson at Markets.com.

“But then he started to sound hawkish.

“There was a very clear reaction in the market to Powell saying ‘data since our last meeting suggests that the ultimate level of interest rates will be higher than expected’.”

Wilson said that meant a higher terminal rate, and “higher for longer” was the likely message.

“In other words, we will slow down but not pivot, Powell stressing the ‘need for ongoing rate increases; ground left to cover; it is very premature to be thinking about pausing’.

“Markets ultimately took it as hawkish and risk took a hit.”

Oil prices were lower as the region went to bed, with Brent crude futures last down 1.33% at $94.88 per barrel on ICE, and the NYMEX quote for West Texas Intermediate losing 1.58% to $88.58.

In Australia, the S&P/ASX 200 was 1.84% lower at 6,857.90, while across the Tasman Sea, New Zealand’s S&P/NZX 50 was 0.87% weaker at 11,184.30.

Both of the down under dollars were weaker against the greenback, with the Aussie last off 0.94% at AUD 1.5892, and the Kiwi retreating 1% to NZD 1.7353.

Reporting by Josh White for Sharecast.com.