Asian Equities Fell, Bonds Rise As Investors Digests Fed Minutes

Asian stocks declined sharply on Thursday as investors weigh Federal Reserve’s plan to reduce its balance sheet by more than $1 trillion a year while hiking interest rates to curb inflation.

Shares in Mainland China, Hong Kong and South Korea edged down with equites in Japan extending loss by over 2.oo%. The MSCI Asian Index ex Japan is down by 1.45%.

Meanwhile, China have signaled its intensions to loosen policy amid  a Covid outbreak and property-market woes.

U.S. Treasuries rose with a steeper yield curve and the dollar gauge is at three-week high.
The Fed signaled that it is considering half-point rate increases and at the same time reduce its massive bond holding at a maximum pace of $95 billion a month to tighten financial conditions.

The Fed’s plan to reduce its near $9 trillion balance sheet brings risks for economic growth and could point to more volatility in global markets. However, investors are doubtful that the Fed can avoid tipping the world’s biggest economy into a recession as it focuses on slowing activity to bring down price pressures.

“This job of orchestrating a soft landing is going to be difficult,” Tracie McMillion, head of global asset allocation strategy at Wells Fargo Investment Institute, said on Bloomberg Television.

“We’ve only seen quantitative tightening once before and it was to a lesser degree than it will be this time, and it ended shortly after it started.”

Meanwhile, Russia slipped closer to a technical default after foreign banks declined to process about $650 million of dollar payments on its bonds, forcing it to offer rubles instead.

Crude oil rallied triggered by the International Energy Agency’s decision to deploy 60 million barrels from emergency stockpiles. The WTI is trading around $97 a barrel while the Brent is trading around 102 a barrel.