Japan’s Nikkei 225 (N225) rose 1.4 percent and Korea’s Kospi (KOSPI) rose 1.3 percent. China’s Shanghai Composite (SHCOMP) rose 0.2%. Hong Kong’s Hang Seng (HSI) opened 1% higher, but soon reversed gains and fell 0.5% from the previous day’s close.
In line with the Fed’s move, the Hong Kong Monetary Authority (HKMA) raised its interest rate by 75 basis points to 2% on Thursday.
Hong Kong’s monetary policy is keeping pace with the Fed, as its currency is pegged to the US dollar in a narrow range. The city is forced to raise interest rates to prevent rising flows as the Fed tightens.
But rising interest rates could also thwart Hong Kong’s still fragile economic recovery from the Covid-19 pandemic. Last month, the city lowered its growth forecast for 2022 to a range of 1% to 2%, up from 2% to 3.5% before.
Eddie Yue, president of HKMA, said on Thursday that widening interest rate spreads between US and Hong Kong markets could lead to growing outflows from the city, but Hong Kong has ample liquidity in the banking system and strong capital buffers.
US stocks closed higher on Wednesday after the Federal Reserve announced it would raise interest rates by an aggressive three-quarters.
Dow futures continued to rise in Asian trading hours on Thursday with an increase of 0.5%. Nasdaq futures rose 0.7%, while the S&P 500 futures rose 0.6%.
The rise in interest rates on Wednesday – the largest in 28 years – signaled to investors that the Fed is committed to reducing inflation. Fed Chairman Jerome Powell said such an increase could come in July if economic data does not improve.
“Given the persistence of inflation and the Fed’s determination to bring it down, it seems likely that the July meeting will see another 75 [basis-point] raising interest rates, “said Kerry Craig, global market strategist for JP Morgan Asset Management, in a note Thursday.
“As in other parts of the world, emerging Asian markets are unable to escape inflationary pressures, especially rising food prices, and in response we expect further tightening of Asian central bank policies,” he said.
– Nicole Goodkind of CNN Business contributed to this report.
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