Asian stocks lower on Fed rate hike expectations

Asian stock markets were mostly lower on Wednesday as comments from Federal Reserve officials strengthened expectations of a rate hike by the Fed within this year.

Keeping score

Helped by a weaker yen, Japan’s Nikkei 225 rose 0.5 percent to 16,819.24. South Korea’s Kospi was 0.1 percent lower at 2,053.09. Australia’s S&P/ASX 200 was down 0.6 percent to 5,452.90. Hong Kong’s Hang Seng index gained 0.4 percent to 23,781.26. Stocks in Southeast Asia and New Zealand were also lower. China’s Shanghai Composite Index was closed for a holiday.

Fed watch

Comments by several Federal Reserve officials strengthened investor expectations that the Fed would increase interest rates this year. Federal Reserve Bank of Richmond President Jeffrey Lacker said rates need to be increased to keep inflation under control, echoing the view held by Cleveland Federal Reserve President Loretta Mester, who said in an interview with Bloomberg that the economy is ripe for an interest rate increase. The Fed is expected by most investors to wait until December to raise rates.

The quote

“We think Cleveland Fed President Mester’s reiteration of her hawkishness caused investors to re-interpret the implications of the previous day’s manufacturing ISM report as signaling an increased likelihood of a December rate hike,” Tim Condon, head of research in Asia at ING in Singapore, said, referring to the Institute for Supply Management manufacturing index. The index rose to 51.5 in September from 49.4 in August, indicating that U.S. manufacturing rebounded last month.

Dimmer US outlook

The International Monetary Fund lowered its forecast for the U.S. economy this year to 1.6 percent from the 2.2 percent it had predicted in July. It blamed the U.S. investment drought on cutbacks in the energy industry, a strong dollar that’s depressing exports and policy uncertainty surrounding the November elections. The fund left unchanged its forecast for overall global growth this year at 3.1 percent. But the world’s advanced economies are expected to grow 1.6 percent this year, down from the 1.8 percent the fund forecast in July, pulled down by slower expected growth in the United States. The IMF upgraded its forecast for Japanese growth to 0.5 percent this year and for the 19 countries that use the euro currency to 1.7 percent.

Wall Street

US markets closed lower on Tuesday. The Dow Jones industrial average fell 85.40 points, or 0.5 percent, to 18,168.45. The S&P 500 fell 10.71 points, or 0.5 percent, to 2,150.49. The Nasdaq composite fell 11.22 points, or 0.2 percent, to 5,289.66.

Oil

US benchmark crude oil added 47 cents to $49.16 per barrel in New York. The contract fell 12 cents to close at $48.69 per barrel on Tuesday. Brent crude, the international standard, advanced 44 cents at $51.31 a barrel in London.

Currencies

The euro strengthened to $1.1215 from $1.1207 and the dollar rose to 102.95 yen from 102.85.