Asian stocks face headwinds after US Federal Reserve interest rate hike

In what may set the stage for more volatility, the $370 billion exchange-traded fund tracking the US equity benchmark (SPY) whipsawed in late trading as concerns over the stability of the financial system resurfaced. PacWest Bancorp plunged 60 percent in post-market trading, leading regional banks lower, after people familiar said the Beverly Hills-based lender has been weighing a range of strategic options, including a sale.

In a typical choppy Fed Day of trading, US equities rallied after the Fed raised rates by a quarter-point as economists forecast and hinted at a possible pause in the most aggressive hiking cycle since the 1980s. However, equities turned lower later as Powell said there won’t be any rate cuts if the inflation rate remains too high. Treasuries rose and the dollar fell.

“Potential Fed pause, but no Fed pivot yet,” said Jason Pride at Glenmede. “The Fed is telegraphing that additional monetary tightening may or may not occur, but rate cuts do not yet appear to be on the table. The Fed’s leadership is working hard to thread the needle between telegraphing too much tightening while also not agreeing with the market’s rate cut narrative.”

The rate debate will resume again later Thursday, with the European Central Bank taking centre stage. Policymakers are seen raising the deposit rate by a quarter-point to 3.25 percent, which would mark a slowdown in their hiking cycle. The decision is expected at 2:15 p.m. in Frankfurt, followed half an hour later by President Christine Lagarde speaking at a press conference.