Asia report: Markets fall as investors digest Fed forecasts

Markets in Asia finished weaker across the board on Thursday, after the US Federal Reserve poured cold water on sentiment as it indicated it would keep interest rates near zero through to 2022.

In Japan, the Nikkei 225 was down 2.82% at 22,472.91, as the yen strengthened 0.26% against the dollar to last trade at JPY 106.84.

Of the major components on the benchmark index, automation specialist Fanuc was down 1.17%, fashion firm Fast Retailing lost 4.12%, and technology conglomerate SoftBank Group was 3.17% weaker.

The broader Topix index was 2.2% weaker by the end of trading in Tokyo, closing at 1,588.92.

On the mainland, the Shanghai Composite was 0.78% softer at 2,920.90, and the smaller, technology-centric Shenzhen Composite lost 0.51% to 1,865.30.

South Korea’s Kospi was down 0.86% to 2,176.78, while the Hang Seng Index in Hong Kong slid 2.27% to 24,480.15.

Chinese internet giant NetEase went against the trend on its debut in the special administrative region, rocketing 3.49% by the close.

Both of the blue-chip technology stocks were weaker in Seoul, with Samsung Electronics down 1.99% and chipmaker SK Hynix losing 2.53%.

Investor sentiment headed south during the Asian session, after the Fed stood pat on interest rates in the US overnight, and said it was not expecting to increase them until at least 2022.

It said it was expecting the US economy to shrink by 6.5% in 2020, and expanding by 5% in 2021.

“The Fed will continue to purchase treasuries and mortgage-backed securities at its current rate of $80bn per month and $40bn per month respectively,” noted CMC Markets analyst David Madden.

“Jerome Powell, the head of the US central bank, basically said that interest rates will remain at or near their current level until at least 2022.

“Powell stated that rates will stay close to zero until the US is on track to achieve maximum employment.”

Madden also pointed out that the Fed was expecting by the end of 2020, the unemployment rate was expected to be 9.3%, but it was then expected to drop to 6.5% next year and slide to 5.5% in 2022.

In 2023, the level is projected to be 4.1%.

“It is worth remembering the pre-pandemic unemployment rate was 3.5%, so one gets a scale of how the labour market has been impacted by the health emergency.

“The economic projections are based on the idea the recovery will begin in the second half of this year and it should last two years.”

Oil prices were lower as the region went to bed, with Brent crude last down 3.16% at $40.41 per barrel, and West Texas Intermediate off 3.56% at $38.19.

In Australia, the S&P/ASX 200 was down 3.05% at 5,960.60, while across the Tasman Sea, New Zealand’s S&P/NZX 50 was off 0.94% at 11,154.93.

Both of the down under dollars were weaker on the greenback, with the Aussie losing 0.67% to AUD 1.4386, and the Kiwi retreating 0.38% to NZD 1.5358.