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Nikkei Asia300 drops amid U.S. rate hike fears

Nikkei Asia300 drops amid U.S. rate hike fears

There's more evidence now that USA economic tail winds highlighted this week by Federal Reserve Chairman Jerome Powell are gathering strength.

"In the USA we have at least three rate hikes this year, but in the euro zone, there was some exaggeration about where inflation was heading so that is now being priced out and yields are moving to the downside", said DZ Bank strategist Daniel Lenz. The chart on the right shows the 10-year Treasury Yield (TNX), which climbed to 2.908% by the end of the trading day. It had been down earlier in the morning. But stocks mounted a huge rebound, clawing back almost three-quarters of its price correction, after initial Fed fears briefly abated.

The Standard & Poor's 500 index dropped 41 points, or 1.5 percent, to 2,671. It had been bouncing between modest gains and losses but the losses accelerated after Powell began answering questions.

The Dow Jones industrial average dropped as much as 500 points Thursday.

He repeated that the gradual path of rate increases that the Fed has been pursuing - with three rate hikes a year ago - "will continue to be the appropriate path as long as the economy performs this way". Powell may try to stick closer to the script set out in his testimony in which he pledged to gradually raise rates while preventing the economy from overheating.

The market got spooked earlier this month when potential signs of inflation strengthened, which raised speculation that the Fed may speed up its timetable.

Mr Powell, who was nominated by Republican President Donald Trump and later confirmed by the Republican-controlled US Senate, said he felt the Fed's current tools for managing interest rates, a steady decline of its balance sheet, and its 2 per cent inflation target were working fine.

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What may make things even more muddled is how long it's been since investors have had to contend with a market where inflation is a threat and interest rates are rising, Weiss said.

The new Fed chair Jerome Powell caused the latest market tantrum.

"By training and experience, he's a capital markets person, not an economist", Phipps said.

Sun Hung Kai Properties rose 0.7% after the Hong Kong property developer reported a 60% jump in net profit attributable to shareholders for six months ended 31 Dec. Hong Kong Exchanges & Clearing declined 2% despite the bourse operator reporting a 28.3% rise in net profit for year ended Dec. 31, in-line with estimates.

In questioning during Tuesday's hearing, Powell was asked about the stock market, whose rise Trump has often touted. Against the euro and sterling, the yen was up 0.1 percent and 0.5 percent respectively. Disney lost $4.94, or 4.5 percent, to $104.87. The 30-year Treasury yield, which is more influenced by expectations for inflation, fell to 3.14 percent from 3.16 percent.

Bilal Hafeez, a macro strategist at Nomura in London, said the extent of the dollar reaction to the tariffs will likely depend on the reaction of other countries to the move.The euro, meanwhile, was up 0.5 percent versus the dollar, with the focus on Sunday's Italian parliamentary election and the level of support for populist agendas that could have a wider impact on the European Union.

COMMODITIES: Benchmark U.S. crude fell $1.22 to $61.79 while Brent crude, the global standard, dropped $1.19 to $65.33 per barrel.

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