2 years ago

Interest rate hikes: Shares fall in Asia and the US

A man wearing a mask walks by the Shanghai Stock Exchange building at the Pudong financial district in Shanghai, China, February 3, 2020. REUTERS/Aly Song
A man wearing a mask walks by the Shanghai Stock Exchange building at the Pudong financial district in Shanghai, China, February 3, 2020. REUTERS/Aly Song

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Stock markets in Asia and America have tumbled after the US central bank this week announced the biggest interest rate rise in 22 years.

The sell-off comes as worries intensified over how rising prices - and the Federal Reserve's steps to rein them in - will affect economic growth.

Major share indexes in Hong Kong and mainland China dropped on Friday morning in Asia, reports the BBC.

That came after shares in New York fell sharply, led by technology stocks.

Hong Kong's benchmark Hang Seng index fell by 3.3 per cent, while shares on the Shanghai Stock Exchange were down by 1.6 per cent. Australia's ASX 200 was 2.4 per cent lower.

Those falls followed the Dow index, which includes big names such as Apple and Nike, sliding on Thursday by more than 1,000 points to end 3.1 per cent lower.

The wider S&P 500 fell 3.6 per cent, while the tech-heavy Nasdaq plummeted by almost 5 per cent.

The losses wiped out the gains the markets had enjoyed on Wednesday, after the Federal Reserve announced it was raising its benchmark rate by half a percentage point to 0.75 per cent to 1 per cent.

That move, which will make borrowing more expensive, had been expected.

Analysts said investors were relieved that the bank had not moved even more aggressively, with Federal Reserve chairman Jerome Powell saying that a bigger rate hike was not under "active consideration".

But Thursday's losses suggested that worries remain about whether the Fed will be able to slow economic activity enough to cool price increases without tipping the economy into recession - defined as the economy getting smaller for two consecutive quarters.

Rising prices are also being driven by factors outside the central bank's control, such as spiking energy prices due to the war in Ukraine.

"Yesterday's [markets] explosion higher was completely comical. It was ridiculous. His comments did not justify the move that we saw," said Kenny Polcari, managing partner at Kace Capital Advisors.

Slowdown warning

While Mr Powell said he was confident the US economy was strong enough to handle the impact of higher rates, investors are concerned that the rising cost of living is starting to hit US households and will slow consumer spending.

In recent weeks, big firms such as Amazon have warned of slowing growth. Government figures this month showed the US economy contracted by 1.4 per cent in the first three months of the year.

Shares in companies reliant on consumer spending were hit especially hard on Thursday.

On the Dow, Nike tumbled 5.9 per cent, Apple fell 5.5 per cent and Home Depot fell 5.1 per cent.

EBay tumbled more than 11 per cent, while Etsy fell almost 17 per cent a day after both firms forecast slower growth than analysts had expected.

Social media platform Twitter bucked the overall market trend, rising 2.5 per cent as billionaire Elon Musk lined up investors to help fund his buyout.

But shares in Mr Musk's electric car company, Tesla, tumbled more than 8 per cent.

The sell-off deepened a downturn in US financial markets since the start of the year. The Dow is down almost 10 per cent since January, while the S&P 500 has dropped 13 per cent and the Nasdaq has tumbled 22 per cent.

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