Global stocks shaky after Fed warns of further monetary tightening


Global stocks were volatile on Wednesday after the Federal Reserves announced an expected 25-basis-point rate hike and warned of further monetary tightening.

The pan-European STOXX 600 fell by 0.32 percent at the beginning of the trading session. Germany's DAX and France's CAC 40 rose by 0.02 percent and 0.08 percent, respectively, after steep drops earlier in the day. Meanwhile, in Britain, the FTSE 100 plummeted by 0.57 percent at one point.

Asian stocks also displayed volatility before generally closing higher. The South Korean Kospi index finished 0.31 percent higher. Hong Kong's Hang Seng soared by 2.34 percent to 20,049.64. China's blue-chip stocks also gained 0.99 percent. On the other hand, Japan's Nikkei 225 closed 0.17 percent lower.

In Australia, the S&P/ASX 200 lost 0.67 percent to 6,968.60. Meanwhile, New Zealand's S&P/NZX 50 was up around 0.07 percent.

The turmoil in the global equity market followed the sharp drops in Wall Street's benchmark indexes. The Dow Jones Industrial Average closed at 32,030.11, falling by 530.49 points or 1.63 percent. The S&P 500 finished at 3,936.97, losing 65.90 points or 1.65 percent. Lastly, the Nasdaq Composite concluded the session at 11,669.96, declining by 190.15 points or 1.60 percent.

All 11 major sectors within the S&P index ended in the red, with real estate experiencing the lowest percentage decline, the sector's steepest one-day drop since September last year.

Wall Street strengthened earlier in Wednesday's session after the Fed announced the widely-expected quarter of a percentage point rate increase, but later tumbled as the market took in the accompanying statement.

"The indexes whipsaw because there's so much at stake, being the first to evaluate the impact of the statement and the subsequent press conference."

Sam Stovall, Chief Investment Strategist at CFRA Research

CFRA Research chief investment strategist Sam Stovall said the selloff on Wall Street showed the market's "displeasure" with the fact that rate hikes might resume for one or two more Fed policy meetings. The market initially expected that the central bank would soon pause its rate hike as high interest rates had contributed to the recent banking crisis.

Treasury Secretary Janet Yellen's remarks at a Senate hearing exacerbated the fall in the equity market, as noted by analysts. Yellen said the Federal Deposit Insurance Corporation (FDIC) was not considering "blanket insurance" for banking deposits after the collapse of Silicon Valley Bank (SVB) and Signature Bank. The Treasury Secretary added that financial regulators would "determine systemic risks on a case-by-case basis."

Authorities in several countries have said that their domestic banking systems can handle the global banking stress in an attempt to assure the public. For instance, the Hong Kong Monetary Authority said the region's banking system had strong capital and liquidity positions. Meanwhile, the Reserve Bank of Australia said the country's banks were "unquestionably strong" because of their solid balance sheets.

Banking crisis rekindles recession fears in U.S.

Analysts said the banking crisis over the past weeks had caused recession fears to return to Wall Street. On Tuesday, the Bank of America (BofA) reported that 42 percent of its fund managers believed a recession would happen in the U.S. within the next 12 months. In February, only 24 percent of BofA fund managers relayed that prediction.

Strategists at investment bank Jefferies also maintained their earlier prediction that a recession would occur within 2023, citing tighter lending requirements at banks as the crisis continued.

Meanwhile, Goldman Sachs chief economist Jan Hatzius said there was a 35 percent chance that a recession would happen in the next 12 months after previously projecting a 25 percent chance. He explained that the increase in odds was caused by higher "near-term uncertainty" around the economic effects of small lender stress.

Analysts also predicted a "stagflationary economy" to persist in the coming months. Stagnation is a situation where economic growth is flat amid high inflation.