Asian stock markets have taken a battering after the US Federal Reserve voted to raise borrowing costs for the fourth time this year, signalling a further squeeze on liquidity around the world.

In Tokyo, the Nikkei closed down nearly 3% to its lowest point for 14 months as the Fed’s pledge to continue with “gradual” rate hikes next year sent shivers through financial markets.

Shares in Hong Kong and Seoul were both down more than 1% while stocks in Sydney finished at a two-year low.

Futures trading pointed to a drop of 2% in the FTSE100 index in London and the Dax in Frankfurt when when the markets open on Thursday morning.

Investors’ confidence that the global economy is headed for a significant slowdown was further weakened when China’s central bank introduced a new lending facility for small private businesses, which was seen as a targeted rate cut designed to kickstart the spluttering economy.

The move by the People’s Bank of China shows the two biggest economies are out of step with Beijing responding to a rate hike in the US with a de facto cut. The Shanghai Composite share index was down nearly 1% in afternoon trade while the yuan wad fixed 0.22% lower aginst the US dollar.

Stocks tumble on deepening fears of Fed mistake. Japan enters bear mkt as Topix slides 21% from Jan high, S&P 500 hits 15mth low after Fed Chair Powell disappointed excessively dovish mkt expectations. US 10y ylds drop to 2.75%, Oil continues downtrend, Bitcoin stable at $3.7k. pic.twitter.com/VrKquOckxr — Holger Zschaepitz (@Schuldensuehner) December 20, 2018

Oil prices, a key barometer of the global economy, renewed their fall on Thursday. Benchmark Brent crude futures were down more than $1, or 1.82%, at $56.20 per barrel, after climbing almost 2% the session before. Oil prices are down more than 30% from peaks seen in October.

The Fed’s 0.25% rate rise to a base rate of 2.5% was well signalled to the market, but investors had expected that the central bank’s hawkish chairman, Jerome Powell, would soften his language about the prospect of more hikes next year.

“The Fed’s been a huge friend of the stock market and they are now a little bit of an enemy and will probably become worse of an enemy before this is all over,” Bob Doll, Nuveen chief equity strategist and senior portfolio manager, told Bloomberg.

However, Powell kept traders guessing by saying that the expected two hikes for 2019 were not set in stone.

“There would be circumstances in which it would be appropriate for us to go past neutral, and there would be circumstances in which it would be wholly inappropriate to do so,” Powell told reporters.

Stocks on Wall Street dropped 700 points after the Fed announcement, ending the day down 1.5% and closing in on the worst ever December since 1931.



