Hong Kong, Shanghai stocks fall after US Fed defies investors’ call and keeps aggressive pace of interest rate increases

  • Asian markets declined across the board. Losses in mainland Chinese markets ignored a new move by the People’s Bank of China to increase liquidity support for small and private businesses
PUBLISHED : Thursday, 20 December, 2018, 10:38am
UPDATED : Thursday, 20 December, 2018, 10:38am

Hong Kong and Shanghai stocks dropped in Thursday’s early trading, along with other Asian markets, as the US Federal Reserve Chairman Jerome Powell kept his aggressive pace of rate increases and ignored investors’ calls for a slower clip.

The Fed raised the key interest rate by 25 basis points for the fourth time this year, setting US rates in a range of between 2.25 per cent and 2.5 per cent, defying a call by investors including President Donald Trump to ease up on raising the cost of money. The move was matched in Hong Kong by the monetary authority to maintain the local currency’s peg to the US dollar.

Hong Kong’s Hang Seng Index fell as much as 0.7 per cent while the H-share index declined by up to 0.9 per cent. On the mainland, the Shanghai Composite Index dropped by up to 0.8 per cent while the Shenzhen Composite Index lost as much as 0.4 per cent.

Hong Kong’s de facto central bank raises base interest rate by 25 points for fourth time this year in lockstep with US monetary policy

“Despite pockets of dovishness, the market reaction had evidently been one of concerns with regards to the US Fed not slowing down enough for the economy,” said Jingyi Pan, a Singapore-based market strategist for IG Group. “For equity markets charting the route ahead, not only did we not get the Santa rally that was hoped for, it does look like one has to grow more accustomed to the market joining President Trump in viewing the Fed as an ‘enemy of the people’. ”

Speaking at a press conference after raising the rates, Powell highlighted “significant uncertainty about both the path and ultimate destination of any further rate increases,” words of caution that suggested significant economic headwinds amid the current US-China trade war.

US investors gave the Fed their thumbs down, sending the Dow Jones Industrial Average 1.5 per cent lower to 23,323.66, with its intraday low reaching the lowest point this year.

Asian markets took the cue from New York and followed in declines. The Nikkei 225 index dropped by as much as 1.5 per cent to the lowest intraday level since March 26. The S&P/ASX 200 dipped 0.1 per cent in Sydney, while Seoul’s Kospi moved down 0.4 per cent.

The losses seemed to have ignored an earlier statement by the People’s Bank of China that the central bank would invent a specific lending tool, namely Targeted Medium-term Lending Facility, to increase liquidity support for small and private businesses.