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Australian Stocks Fall More than 2% as Fed Signals No Rate Hikes Through 2022

Stocks in Asia Pacific traded lower on Thursday after the U.S. Federal Reserve indicated on Wednesday that it would keep interest rates near zero through 2022.

Shares in Australia led losses among the region’s major markets, with S&P/ASX 200 dropping 2.29%.

Hong Kong’s Hang Seng index traded 0.61% lower. Shares of Chinese internet giant NetEase soared in their Hong Kong debut on Thursday, jumping more than 8% from their issue price.

The Nikkei 225 in Japan slipped 1.05% while the Topix index shed 0.86%. Over in South Korea, the Kospi dipped 0.48%.

Mainland Chinese stocks were higher, with the Shanghai composite up around 0.2% and Shenzhen component 0.479% higher.

Overall, the MSCI Asia ex-Japan index traded 0.56% lower.

Investor reaction to the Fed’s recent economic forecast was watched on Thursday. The U.S. central bank kept interest rates unchanged on Wednesday and indicated it does not expect to raise them through 2022. The Fed also expects the U.S. economy to contract by 6.5% in 2020 before expanding by 5% in 2021.

“We think the Fed is gonna keep their foot on the gas until the jobs come back, and there’s a lot of jobs to come back,” Gareth Nicholson, head of fixed income at Bank of Singapore, told reporters on Thursday. Using the global financial crisis as an example, Nicholson said it took five years before the level of unemployment went back to pre-crisis levels.

“There is a dispersion between the economy and the markets,” Nicholson said. “The Fed, I think, is looking more at the economy, they’re looking at the unemployment rate which is at record levels. They’re looking at a lot of the production and manufacturing which is still, you know, maybe it’s turning slowly but it’s still struggling.”

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 96.054 after earlier seeing levels below 96.

“The (Federal Open Market Committee’s) decisions does not change our view for the USD,” economists at Commonwealth Bank of Australia wrote in a note. “Once market participants digest the FOMC’s views, we expect the USD to continue along its depreciating path, consistent with a recovery in the world economy.”

Overnight on Wall Street, the Dow Jones Industrial Average and S&P 500 saw a second straight day of declines. The S&P 500 closed 0.5% lower at 3,190.17 while the Dow dropped 282.31 points, or 1%., to end its trading day at 26,989.99. The Nasdaq Composite, on the other hand, jumped 0.7% to 10,020.35, marking its first-ever close above 10,000.

Oil prices dropped in the morning of Asian trading hours, with international benchmark Brent crude futures 2.49% lower at $40.69 per barrel. U.S. crude futures also fell 2.9% to $38.45 per barrel.

The Japanese yen traded at 106.97 per dollar, having strengthened from levels above 109 seen earlier in the trading week. The Australian dollar changed hands at $0.6953 after seeing an earlier high of $0.7004.