Equities fell in Japan and South Korea, where Samsung Electronics Co. missed profit estimates, while Australian shares declined 10% from an August peak. China and Hong Kong struggled too.

U.S. equity futures and Asian stocks retreated Thursday as investors digested Federal Reserve Chair Jerome Powell’s signal of a March interest-rate liftoff and the possibility of unexpectedly aggressive tightening.

Equities fell in Japan and South Korea — where Samsung Electronics Co. missed profit estimates — while Australian shares declined 10% from an August peak. China and Hong Kong struggled too. U.S. contracts reversed gains to turn lower, after the fallout from the Fed wiped out a Wall Street rally on Wednesday. 

Powell reinforced the Fed’s determination to quell the highest inflation in a generation amid a robust economic recovery from the pandemic. The central bank also said it expects the process of balance-sheet reduction will commence after it has begun raising borrowing costs.

Longer maturity Treasuries trimmed a slide from the U.S. session but yields remained higher in the wake of Powell’s commentary. The gap between five- and 30-year yields was around the narrowest since early 2019. 

Global bonds succumbed to losses, including in New Zealand and Australia. The dollar was at a one-month high, while commodity-linked currencies weakened.

The looming Fed tightening has spurred a selloff in stocks and bonds this year as investors adjust to receding pandemic-era stimulus and question whether that poses a risk to economic momentum. Money-market traders ratcheted up the pace of expected hikes.

The FOMC meeting “played out more hawkishly than we expected,” Steven Englander, global head of G-10 FX research at Standard Chartered Bank, wrote in a note “The FOMC statement was largely as anticipated, but Fed Chair Powell emphasized upside risks to inflation, pointing to a steady pace of policy withdrawal.”

Rate Outlook

Powell endorsed rate liftoff in March and opened the door to more frequent and potentially larger hikes than anticipated.

Swaps traders are now pricing in around 30 basis points of tightening at the next central bank gathering in March. The Fed typically moves rates in increments of 25 basis points, so that kind of pricing suggests that at least a standard hike is certain and there’s around a one-in-five possibility of a 50 basis point increase.

Elsewhere, crude oil edged lower, gold extended a decline and Bitcoin wavered around the $37,000 level.

Among corporate highlights, Tesla Inc. profit beat estimates but the shares whipsawed in extended trading after the company said supply-chain troubles will limit output. Intel Corp. fell on a disappointing profit forecast. 

Meanwhile, Pershing Square Capital Management is now among streaming giant Netflix Inc.’s top 20 shareholders, Bill Ackman said in a tweet on Wednesday.

On the geopolitical front, the U.S. delivered a written response to Russia on the crisis in Ukraine, with Secretary of State Antony Blinken saying it sets out “a serious diplomatic path forward” even though it rejected some of the Kremlin’s key demands. 

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.7% as of 10:31 a.m. in Tokyo. The S&P 500 fell 0.2%
  • Nasdaq 100 futures shed 0.8%. The Nasdaq 100 rose 0.2%
  • Japan’s Topix index lost 1.3%
  • Australia’s S&P/ASX 200 index fell 1.7%
  • South Korea’s Kospi index lost 2.4%
  • China’s Shanghai Composite index fell 0.2%
  • Hong Kong’s Hang Seng index fell 1.9%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.1%
  • The euro was at $1.1231
  • The Japanese yen was at 114.58 per dollar
  • The offshore yuan was at 6.3432 per dollar

Bonds

  • The yield on 10-year Treasuries fell one basis point to 1.85%
  • Australia’s 10-year yield rose nine basis points to 2.04%

Commodities

  • West Texas Intermediate crude was at $87.18 a barrel, down 0.2%
  • Gold was at $1,816.60 an ounce, down 0.2%

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