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Nikkei Markets

Asian stocks fall as US Fed rate outlook damps risk-asset demand

Rate-sensitive Hong Kong developers drag down A300 index

HONG KONG (Nikkei Markets) -- Asian shares outside of Japan fell Thursday as the U.S. Federal Reserve's outlook for interest rates damped investor appetite for risk assets.

The Nikkei Asia300 Index declined 0.9% to close at 1,288.21.

The Fed's quarter percentage interest rate cut yesterday and an earlier end to its balance sheet normalization did not meet the expectations of traders. U.S. equities declined by the most in two months yesterday, the dollar index climbed to a more-than-two-year-high, and the Treasury yield curve flattened.

The risk-off in U.S. equities came on the back of comments by Fed Chair Jerome Powell that suggested that the 25-basis-points reduction was not the beginning of a rate-cutting cycle. Powell, in his post-policy press conference, reiterated several times the rate cut was "a mid-cycle adjustment to policy" and not the beginning of rate cutting cycle. The Fed chief said that "real economic weakness" would be required for a long cycle of lower rates.

"'Mid-cycle' was all that mattered. That was the red flag, and the market heard enough evidence that its implied easing path was thrown into question," Chris Weston, head of research at Australia-based Pepperstone Group, said. The focal point of Powell's remarks was that this was an insurance cut to keep in check the fallout from considerations such as trade, he added.

Two Fed members' opposition to the rate cut further soured the appetite for risk assets.

Rate-sensitive stocks of Hong Kong developers were among the losers on the A300 gauge. Sun Hung Kai Properties paced the declines, tumbling 4.1%.

The Hong Kong Monetary Authority followed the Fed and cut the kept policy rate by 25 basis points on Thursday. On account of the Hong Kong dollar being pegged to the U.S. dollar, the Asian city's monetary policy is dictated by the U.S. policy.

Hong Kong-listed casino operators Galaxy Entertainment Group fell 1.4% and Sands China edged 0.1% lower after Macau gross gaming revenues declined 3.5% year-on-year in July.

Bajaj Auto rose 0.9% after the Indian two-wheeler maker said July total sales by volume were down 4.7% from a year ago. Maruti Suzuki India advanced 1.9% despite the carmaker reporting a 33.5% fall in vehicle sales last month.

Singapore Airlines tumbled 4.9% following a more-than-20% year-on-year decline in June quarter net profit.

Singapore Telecommunications closed 0.9% higher. The company said late Wednesday that it would maintain its investment-grade credit ratings after Standard & Poor's cut its outlook to negative.

Singapore Exchange dropped 1.8%. The bourse operator reported a 7.7% rise in net profit for the full year ended June 30.

--Nimesh Vora

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