Asian stocks fall as investors weigh impact of rate rises

Global equities were headed for their steepest weekly fall in two years after the UK and Switzerland raised interest rates, adding to concerns that tighter monetary policies from central banks could undercut a global economic recovery.

The MSCI All-World index, a broad barometer for global developed and emerging market equities, was down 5.7 per cent for the week, on track for its worst weekly performance since the depths of the pandemic in March 2020.

Japan’s benchmark Topix index and Australia’s S&P/ASX 200 both shed almost 2 per cent, although China’s CSI 300 index bucked the trend with a rise of about 1 per cent. Futures on European markets also indicated benchmark indices would eke out small gains at the open.

The declines in Asian markets came after the S&P 500 index fell more than 3 per cent, taking the US stock benchmark 6 per cent lower this week, while the technology-focused Nasdaq Composite fell more than 4 per cent.

Shares had initially been buoyed by Wednesday’s historic 0.75 percentage point rise from the US Federal Reserve and accompanying comments from chair Jay Powell that moves of that magnitude would not become commonplace.

But the Swiss central bank surprised markets on Thursday with its first rate rise since the global financial crisis in 2007, after inflation in Switzerland hit a 14-year high last month. That was followed by a rate rise from the Bank of England, which warned that UK inflation would climb above 11 per cent this year.

“Global money is getting more expensive, and it has a way to go yet,” said Robert Carnell, head of Asia-Pacific research at ING. “[US] Equity futures suggest a bounce as we head into the weekend. But that should probably be treated with a pinch of salt.”

Stock futures pointed to a 0.5 per cent rise for the S&P 500 when Wall Street opens later today, while the FTSE 100 was set to open flat.

In currency markets, the yen weakened as much as 1.8 per cent to ¥134.63 against the dollar after the Bank of Japan left policy rates unchanged, as traders bet it would remain the only major central bank to maintain ultra-loose monetary policy this year.

The Japanese currency had touched a 24-year low on Monday as the draw of yen-denominated securities waned in the face of rate rises from other major economies.

“The Bank of Japan is happy to continue being the ‘odd one out’ among central banks,” said Takayuki Toji, an economist at Sumitomo Mitsui Trust Asset Management. “The BoJ’s analysis suggests that a weaker yen will be beneficial for the Japanese economy providing exchange-rate fluctuations are not too drastic.”

The European Central Bank is widely expected to raise rates at its next meeting in July. The ECB said on Wednesday it would “accelerate the completion of the design of a new anti-fragmentation instrument” to support the eurozone’s most indebted nations.

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