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Asian markets turn cautious after Fed raises interest rates

  • Federal Reserve raises interest rates for the second time this year
  • Oil prices extend declines after tumbling almost 4 percent overnight on news of surprise build in U.S. gasoline stocks

Asian equities closed mostly lower on Thursday after the U.S. Federal Reserve raised interest rates for the second time this year, as was widely expected by markets.

Despite inflation coming in below the Fed's target, the central bank said it would raise the benchmark interest rate by 25 basis points. The Fed also provided greater detail about how it would unwind its massive balance sheet.

Symbol
Name
Price
 
Change
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NIKKEI
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HSI
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ASX 200
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SHANGHAI
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KOSPI
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CNBC 100
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The Nikkei 225 edged lower by 0.26 percent, or 51.7 points, to close at 19,831.82, and the Kospi gave up earlier gains to close down by 0.46 percent, or 10.99 points, at 2,361.65.

Australia's S&P/ASX 200 tumbled 1.21 percent, or 70.704 points, to close at 5,763.2, driven by weakness in its materials and energy sub-indexes, which were down 2.52 percent and 2.23 percent respectively. Major banking and mining stocks traded in the red.

Markets in greater China were mixed, with the Hang Seng Index lower by 0.95 percent at 3:00 p.m. HK/SIN. On the mainland, the Shanghai Composite edged higher by 0.06 percent, or 1.9934 points, to end at 3,132.6674, and the Shenzhen Composite rose 0.914 percent, or 16.9269 points, to finish the session at 1,869.7122.

Markets regarded the Fed's increase in interest rates as a dovish hike. The Fed's characterization of the economy as "slightly softer" and details regarding the unwind in the balance sheet likely took pressure off the central bank to tighten further, ANZ economist Giulia Lavinia Specchia said in a note.

Going forward, markets appeared doubtful that the Fed will stick to its forecast of three rate hikes this year.

"Traders clearly doubt the inflation outlook espoused by the Fed ... With little traction evident in wages or inflation, the markets are expressing skepticism about an ongoing recovery," CMC Markets Chief Market Strategist Michael McCarthy said.

Former Federal Reserve Governor Robert Heller told CNBC that he saw one more rate hike on the cards this year.

"I think the Federal Reserve will do one (more) hike and that is just because they want to go slow and try to avoid anything that might upset the markets, not that I think the markets wouldn't be able to take a stronger increase and a faster pace of normalization," Heller said, adding that he would like to see long-term rates at around 3 percent.

In Japan, shares of Toshiba remained under pressure as some of Western Digital's SanDisk subsidiaries sought injunctive relief against it. Western Digital said it had "no choice" but to pursue legal action as Toshiba continued to "circumvent" contractual rights related to its memory joint ventures.

The Japanese conglomerate is also unlikely to meet the deadline for filing its annual financial statement, Nikkei reported. Reuters later said Toshiba would choose a bidder for the sale of its memory business in the second half of the month. Shares of the company reversed losses earlier in the session to close 1.02 percent higher at 316.5 yen each.

Interest-rate-sensitive property stocks traded lower in Hong Kong after the Hong Kong Monetary Authority (HKMA) raised interest rates by 25 basis points following the Fed's move stateside. The Hong Kong dollar is pegged to the greenback. Hang Lung Group dropped 4.42 percent, and New World Development was down by 1.89 percent.

South Korea's Samsung Electronics said it would be increasing its production of 64-layer NAND flash memory chips as the company intends to cover more than 50 percent of the market by the end of the year. Samsung shares closed 0.71 percent higher.

Oil prices were mixed after falling to seven-month lows overnight. Brent crude gained 0.06 percent to trade at $47.03 a barrel, while U.S. crude was off by 0.07 percent at $44.70.

The dollar index, which tracks the dollar against a basket of major currencies, continued to trade below the 97 handle. The dollar index was at 96.928 at 2:30 p.m. HK/SIN. Against the yen, the dollar was mostly flat, trading at 109.64, compared with levels around 109.59 seen in the previous session.

Down Under, jobs data for May beat expectations, with 42,000 new jobs created, compared with the 10,000 expected. The Australian dollar jumped as high as $0.7625 following the news, compared with levels around $0.7587 seen earlier. The Aussie dollar last traded at $0.7612.

In New Zealand, first quarter gross domestic product (GDP) rose 0.5 percent, missing an expected gain of 0.7 percent on-quarter, and at an annual pace of 2.5 percent, below the 2.7 percent gain forecast.

In central bank news, the Bank of Japan begins a two-day meeting today. The Bank of England will make its rate decision at 7:00 p.m. HK/SIN.

On Wall Street, stocks closed mixed after the Fed's announcement, with the Dow Jones industrial average gaining 0.22 percent, or 46.09 points, to close at 21,374.56.