ASIAN markets fell today on concerns over interest rates following hawkish comments by a senior Federal Reserve official indicating the central bank was likely to keep them higher for longer.

Despite falling sharply over the last 12 months, US inflation remains stubbornly above the Federal Reserve’s long-term target of 2%, leading most Fed officials to predict last month that another hike is needed this year.

Federal Reserve vice-chair for supervision Michael Barr told a conference in New York yesterday that he expected rates would need to remain at a “sufficiently restrictive level” for “some time” to rein in inflation.

Barr’s comments echo the views of the majority of his colleagues, who recently lowered the number of rate cuts they expect in 2024, suggesting a longer period of high rates. 

The Fed has raised its key lending rate 11 times since March 2022, lifting to a 22-year high.

With inflation well above its target, “the Fed is gonna keep rates high and we are expecting higher rates for longer,” Xi Qiao, managing director for wealth management at UBS, told Bloomberg Television. 

“That could be good for the US dollar, but more caution on the equity markets.”

Wall Street ended mixed following a congressional deal to avert an immediate US government shutdown, with traders fuelling a bond market selloff.

“Any ‘relief rally’ from the US government spending deal appears to have been short-lived as bond markets witnessed a deepening selloff, leading to rising yields across the curve,” said SPI Asset Management’s Stephen Innes.

Treasury yields remained lofty with the yield on the 10-year US Treasury – a focal point for investors – reaching the highest level since 2007 while the 30-year bond yield was at its highest since 2010.

Treasury bond yields are seen as a proxy for US interest rates and closely watched.

“This yield surge reflects the market’s response to messaging from the Federal Reserve, indicating the central bank’s commitment to keeping borrowing costs elevated to combat inflation,” said Innes.

“The global bond market selloff has gained momentum, partly driven by the reprieve from a US government shutdown,” he added.

Hong Kong led the equities decline in Asia today, falling nearly 3% as the market reopened following a holiday weekend.

Going against the flow, heavily indebted Chinese property giant Evergrande saw its stock jump as it resumed trading in Hong Kong days after it announced its boss was under criminal investigation.

Tokyo was down 1.2% while Sydney, Wellington, Singapore, Manila and Bangkok were also lower. Taipei and Jakarta were flat and Kuala Lumpur was the sole gainer.

Markets in mainland China and South Korea were closed for holidays.

Key figures around 0230 GMT

Tokyo - Nikkei 225: DOWN 1.2% at 31,365.92 (break)

Hong Kong - Hang Seng Index: DOWN 2.9% at 17,285.97

Shanghai - Composite: Closed for a holiday

Euro/dollar: DOWN at US$1.0469 from US$1.0484 Monday

Pound/dollar: DOWN at US$1.2076 from US$1.2094

Euro/pound: UP at 86.69 pence from 86.66 pence

Dollar/yen: UP at  ¥149.89 from  ¥149.84

Brent North Sea crude: DOWN 1.0% at US$89.77 per barrel

West Texas Intermediate: DOWN 1.1% at US$87.89 per barrel

New York - Dow: DOWN 0.2% at 33,433.35 points (close)

London - FTSE 100: DOWN 1.3% at 7,510.72 (close) – AFP, October 3, 2023.