TOKYO (AP) — Asian shares declined Wednesday after stocks tumbled on Wall Street as worries persist about higher interest rates and their tightening squeeze on the global economy.
Tokyo’s benchmark Nikkei225 dropped 1.4% to 27,102.21 during afternoon trading. Australia’s S&P/ASX 200 slipped 0.3% to 7,314.50. South Korea’s Kospi fell 1.6% to 2,419.15. Hong Kong’s Hang Seng dropped 0.3% to 20461.32, while Shanghai Composite fell 0.6% at 3,287.64
New Zealand’s central bank In an effort to reduce inflation, the benchmark rate for interest was raised by half a point to 4.75%. Despite widespread economic pain due to a devastating storm, the increase could raise borrowing costs for consumers on all types of loans, such as mortgages and credit cards.
Higher rates are bad for investment prices. They also increase the chance of a recession through slower business investment and lower consumer spending.
U.S. consumer spending and employment have fared well in the face of higher interest rates, but Tuesday’s report revealed that sales of homes that were previously occupied experienced a slowdown. This was their slowest pace for more than a decade. Investors are left wondering if the Fed will reverse rate increases or reaffirm its aggressive stance.
“Amid the evolving new narrative of stronger US growth, payrolls, retail sales, and the additional Fed response required to tame the rude health of the US economy, investors are beginning to think the hawkish Fed may not have entirely run its course yet,” Stephen Innes of SPI Asset Management said in a commentary.
The S&P 500 fell 2% to 3,997.34 on Tuesday for its sharpest drop since the market was selling off in December. The Dow Jones Industrial Average dropped 697 points (or 2.1%) to 33.129.59. While the Nasdaq composite fell 2.5%, to 11.492.30.
Home Depot fell to one of the market’s larger losses after giving financial forecasts that fell short of Wall Street’s expectations. It fell 7.1% despite reporting higher profit for the three months ended 2022 than forecast.
According to the retailer’s announcement, it will spend $1Billion to raise wages for hourly U.S. workers and Canadian workers. This was a sign of wider market concerns that rising costs have been affecting profits, which are one main lever that affects stock prices.
Morgan Stanley strategists believe that the stock market and rates are so high that U.S. stocks appear to be more expensive now than they were in 2007.
The 10-year Treasury yield, which sets rates for mortgages and other loans, jumped further to 3.95%, from 3.82% on Friday. The two-year yield rose from 4.62% to 4.72%. It’s now at its highest level since 2007.
As Wall Street increases its projections about how high the Federal Reserve will raise short-term interest rates to combat inflation, yields have risen this month. The Fed has raised its overnight rate from zero to 4.50%, to now range from 4.75% to 4.75%.
It is possible that the Fed could increase its rate forecasts further next month as it releases its latest projections on the economy. Recent reports also suggest that inflation may not be cooling as swiftly and smoothly as anticipated. Investors are also rethinking their projections regarding when the first rate cut could occur.
These fears have caused Wall Street to slow down its strong rally in the first quarter of the year. Having risen as much as 8.9%, the S&P 500 is now clinging to a gain of 4.1% for the year so far.
On Wednesday, benchmark U.S. crude fell 35 cents to $76.01 a bar in electronic trading on New York Mercantile Exchange. Brent crude, which is the international standard for pricing, dropped 37 cents per barrel to $82.68.
From 134.92 yen, the U.S. dollar dropped to 134.85 Japanese Yuan. From $1.0653, the euro rose to $1.0659.
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama