ASIAN STOCK SLUMPS AS FED TURN HAWKISH

Asian stocks followed Wall Street after the U.S. Federal Reserve said it would end bond-buying stimulus in March to set up three interest rate increases next year to tackle heated inflation. The Federal Open Market Committee (FOMC) laid out a scenario in which the COVID-19 pandemic, despite the emergence of the Omicron variant, gives way to a benign set of economic conditions, with inflation easing largely on its own, interest rates increasing comparatively slowly, and the unemployment rate staying low in coming years. The economy no longer needs increasing amounts of policy support," Fed Chair Jerome Powell said in a news conference after the conclusion of the two-day policy meeting.

The Nikkei 225 Index dropped 1.79% to close at 28,545 while the broader Topix Index fell 1.42% to 1,984 on Friday, after the Bank of Japan decided to slow purchases of corporate bonds and commercial paper to pre-pandemic levels from April, citing improvements in big firms’ financial conditions. The BOJ however maintained ultra-loose policy and extended financial relief for small firms, as expected. the BoE surprising markets by raising rates for the first time since the pandemic began. Almost all sectors of the Japanese market declined, with notable losses from Lasertec (-2.28%), SoftBank (-2.87%), Toyota (-1.73%), Tokyo Electron (-3.18%), Recruit Holdings (-3.36%), Fast Retailing (-1.32%) and Keyence (-2.23%), among others.

The Shanghai Composite Index fell 1.16% to close at 3,632 while the Shenzhen Component Index declined 1.62% to 14,868 on Friday, dragged down by consumer firms amid concerns over a resurgence of Covid cases, while coal miners retreated from recent run ups. Some notable decliners were Kweichow Moutai (-3.22%), Longi Green Energy (-4.19%), Shanxi Meijin (-3.66%), Wuliangye Yibin (-3.43%), East Money (-2.19%), Shaanxi Coal (-4.67%), Shanxi Xinghuacun (-2.78%) and Luzhou Lao (-3.63%). Meanwhile, the US government hit several Chinese companies with export restrictions on Thursday, citing national security reasons and using biotechnology and surveillance to abuse human rights.

The BSE Sensex ended 889.40 points or 1.54% lower to close at 57,011.74 on Friday. Banks, consumer goods and autos were the main draggers. 25 out of 30 stocks on BSE Sensex ended in red. Among the individual stocks, IndusInd Bank (-4.89%), Kotak Bank (-3.55%), Hindustan Unilever Limited (-3.43%), watchmaker Titan (-3.25%) were among the major laggards. On the week, the BSE fell by 3%.

"The FOMC delivered a hawkish tilt for Christmas (but) markets seemingly have taken the tilt in their stride given three hikes were close to being priced into the meeting," Tapas Strickland, a director of economics at National Australia Bank, wrote in a note to clients. "Powell didn't think the Fed was behind the curve" in fighting inflation, Strickland added.

Attention now turns to policy announcements later Thursday from the European Central Bank and the Bank of England, which are also facing heated inflation. The banks are trying to balance the need to support economies threatened by the coronavirus with the need to withdraw easy money to cool inflation. The ECB is expected to dial back stimulus one more notch, but will pledge copious support for the next year, sticking to its long-held view that price pressures will abate on their own. However, investors sharply increased their bets that the BoE is about to raise rates after a report on Wednesday showed British consumer price inflation surging in November to its highest in more than 10 years, exceeding all forecasts from economists.

"Risk sentiment remains positive. Money markets see good odds for a first Fed hike by May, followed by more by September and December, although three quarter-point rate increases aren't fully priced until February 2023.Ten-year U.S. Treasury yields edged up to 1.4718%, adding to Wednesday's advance. Equivalent-maturity Australian government bond yields jumped 3.7 basis points to 1.617%.The U.S. dollar index , which measures the currency against six major peers, was 0.02% higher at 96.399, stabilizing after a 0.21% loss overnight.