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Asian Stocks Down as Tighter Fed Policy, China COVID-19 Outbreak Continue Impact

By Gina Lee – Asia Pacific stocks were mostly down on Friday morning, while U.S. equity futures steadied amid cautious trading. Investors continue to monitor both the U.S. Federal Reserve’s plan to tighten its monetary policy and the latest COVID-19 outbreak in China.

Japan’s Nikkei 225 edged down 0.19% by 10:38 PM ET (2:38 AM GMT). Data released earlier in the day showed that the current account n.s.a. was JPY1.648 trillion ($13.31 billion) in February, while the adjusted current account was JPY520 billion.

South Korea’s KOSPI inched down 0.09% while in Australia, the ASX 200 rose 0.62%.

Hong Kong’s Hang Seng Index was down 0.53%.

China’s Shanghai Composite was down 0.69% and the Shenzhen Component fell 0.95%.

U.S. shares saw modest gains on Thursday, and global equities are set for a weekly loss as concerns that the Fed’s policy could lead to a recession continue.

U.S. Treasury yields retreated, and the bond curve remained steeper, as the impact of the Fed’s hawkish tone in the minutes from its latest meeting continues. In the minutes, released on Wednesday, the central bank outlined plans to pare its balance sheet by more than $1 trillion annually.

Oil was mostly on a downward trend, with the International Energy Agency and the U.S. planning to release millions of barrels of crude from strategic reserves and China’s COVID-19 outbreak dampening fuel demand.

The prospect of sharp Fed rate hikes alongside a reduction in its bond holdings, the ongoing war in Ukraine, and China’s COVID-19 outbreak, with the city of Shanghai topping 21,000 daily cases, are all dampening investor sentiment and risk appetite.

“Stocks have had a little bit of a harder time this week digesting the fact that interest rates are going to be higher” amid a major shift in expectations around monetary policy, Ameriprise Financial Inc. global market strategist Anthony Saglimbene told Bloomberg.

Meanwhile, a slew of Fed policymakers chimed in on policy moving forward at separate events on Thursday.

St. Louis Fed President James Bullard said he prefers hiking the policy rate to 3% to 3.25% in the second half of 2022. However, Chicago Fed President Charles Evans and his Atlanta counterpart Raphael Bostic said that they favor hiking rates to neutral while continuing to monitor the economy.

The Reserve Bank of India will also hand down its policy decision later in the day.

Meanwhile, the war in Ukraine that started with Russia’s invasion on Feb. 24 could last weeks, or even years, the U.S. warned. The European Union also reached an agreement to ban coal imports from Russia, the first time that the bans have targeted Russia’s crucial energy revenues.

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