Volkswacht Bodensee - Asia, Europe join Wall St plunge as Powell wrecks Fed pivot hopes

Equities have rallied for more than a week on speculation the US central bank would join others in tamping down its monetary-tightening campaign as the economy showed signs of slowing.

On Wednesday, the bank unveiled a fourth straight 75 basis-point increase -- the sixth hike this year -- and opened the door to a smaller increase at future meetings, giving a boost to Wall Street.

But Powell soon after sent traders scattering when he told a news conference that while it would be appropriate to lessen the size of the hikes, "incoming data since our last meeting suggests that ultimate level of interest rates will be higher than previously expected".

He added that "we still have some ways" until borrowing costs were at the necessary level and that it "is very premature to be thinking about pausing".

And while there is a building fear that the increasingly tight monetary conditions will send the world's top economy into a recession, the Fed boss said it would take time for the effects of the measures to kick in.

"The historical record cautions strongly against prematurely loosening policy," he warned. "We will stay the course, until the job is done."

Investors now expect rates to top out at more than five percent, compared with four percent currently.

The comments hammered the narrative that had supported stocks, sending Wall Street's three main indexes tanking -- led by rate-sensitive tech giants -- and pushing the dollar up against its peers.

"Every time the market gets a little bit of dovish hope, it gets smacked on the nose with a rolled-up newspaper," Scott Rundell of Mutual Ltd said. "There’s a lot of volatility still ahead."

Hong Kong led the losses as the city's central bank hiked rates in line with the Fed, owing to their policy link via the dollar peg.

Traders gave back a chunk of the previous two days' gains, which came on the back of speculation China was planning to roll back some of its painful zero-Covid policies. Adding to the selling was confirmation from Beijing's health authority that it intended to stick to the strategy.

Shanghai, Sydney, Seoul, Wellington, Mumbai, Bangkok, Taipei and Manila were also well in the red. Tokyo was closed for a holiday.

London, Paris and Frankfurt extended the losses.

"While the market got what it wanted in the context of expectations of smaller rate rises, they probably weren’t expecting that rates might need to go quite a lot higher, thus removing any prospect of an imminent pause, or even a rate cut much before the end of 2024," said Michael Hewson at CMC Markets.

The release Friday of US jobs figures will give another insight into the state of the economy and particularly the labour market, which has remained resilient in the face of decades-high inflation and rising rates.

As the Fed is basing its moves on data, a strong reading could give officials room to continue lifting.

Before that, the Bank of England is tipped to lift its key rate by 0.75 percentage points to three percent -- the most in 33 years and putting them at the highest since 2008 -- though some analysts are even predicting a full percentage point hike.

The pound sank against the dollar ahead of the announcement.

- Key figures around 0815 GMT -

Hong Kong - Hang Seng Index: DOWN 3.1 percent at 15,339.49 (close)

Shanghai - Composite: DOWN 0.2 percent at 2,997.81 (close)

Tokyo - Nikkei 225: Closed for a holiday

London - FTSE 100: DOWN 0.8 percent at 7,087.64

Euro/dollar: DOWN at $0.9776 from $0.9816 on Wednesday

Pound/dollar: DOWN at $1.1325 from $1.1390

Dollar/yen: UP at 148.00 yen from 147.90 yen

Euro/pound: UP at 86.33 pence from 86.17 pence

West Texas Intermediate: DOWN 1.0 percent at $89.13 per barrel

Brent North Sea crude: DOWN 0.7 percent at $95.45 per barrel

New York - Dow: DOWN 1.6 percent at 32,147.76 (close)

A.Gasser--BTB