Australia

Australian shares are positioned to fall today after an afternoon tumble for US equities. Indices closed lower following a 0.25% interest rate hike by the Federal Reserve.

ASX futures were sloping 52 points or 0.74% downward as of 7:00am on Thursday, suggesting a loss at the open.

Following the central bank's latest decision, the S&P 500 lost 1.7% while the Dow Jones Industrial Average and the Nasdaq Composite both dropped 1.6%.

After a quarter-point increase, the Fed's rate target now stands at 4.75% to 5%. In projections released alongside its decision, the Fed indicated the target rate could end 2023 just barely above 5%, pointing to limited room for further increases this year.

Wednesday's rate hike was largely expected, although banking turmoil on both sides of the Atlantic gave the Fed a particularly tough call. Central bankers have been weighing their commitment to inflation-righting rate hikes against the possibility that more such moves could exacerbate recent turmoil for banks big and small.

In commodity markets, Brent crude oil leaped 2.0% to $US76.80 a barrel while gold advanced 1.6% to US$1,970.47.

Yields on Australian government bonds rose. The 2 Year increased to 3.00% and the 10 Year climbed to 3.36%. US Treasury notes fell, however, with the 2 Year yield declining to 3.98% and the 10 Year falling to 3.50%.

The Australian dollar rose to 67.55 US cents from its previous close of 66.67. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, dipped to 96.12.

Asia

Chinese stocks ended higher, with the benchmark Shanghai Composite Index rising 0.3% to settle at 3265.75. The Shenzhen Composite Index gained 0.6% to 2098.44 and the tech-heavy ChiNext Price Index edged up 0.2% to 2341.92. Consumer goods and services sectors sustained a recent rebound to lead gains. Consumer electronics manufacturer Xinya Electronic jumped 8.0% while home appliance and components company Skyworth Digital rose 6.7%. Analysts largely expect the positive momentum to extend into coming weeks, as investors add positions for an expected earnings recovery this year.

Hong Kong's benchmark Hang Seng Index ended 1.7% higher at 19591.43, tracking a recovery in U.S. equities as investors took a breather after recent banking sector concerns. Market sentiment improved as most shares on the HSI rose. Property stocks led the gainers with Wharf Real Estate Investment up 6.0% and Longfor Group gaining 5.2%. Hang Seng Properties index rose 2.05%. Banking sector and financial stocks also strengthened. HSBC Holdings was up 3.1% and insurance company AIA Group rose 3.6%. Chip makers underperformed the market as the Biden administration unveiled tight restrictions on U.S. funding for Chinese semiconductor manufacturers. Semiconductor Manufacturing International Corp. dropped 1.8%.

Japanese stocks ended higher, led by gains in financial and electronics shares, as concerns about the global banking sector eased. Nomura Holdings climbed 4.4% and TDK Corp. gained 4.6%. The Nikkei Stock Average rose 1.9% to 27466.61.

India's Sensex index closed 0.2% higher at 58214.59, rising for a second day. Shares tracked the recovery in U.S. stocks as market sentiment improved after the turmoil surrounding Credit Suisse. The banking sector and financial stocks led gains. Bajaj Finance gained 2.2%, ICICI Bank was 0.7% higher and IndusInd Bank rose 1.0%. Among decliners, NTPC was 1.5% lower, Tata Steel dropped 0.1% and HCL Technologies declined 0.3%.

Europe

European stocks edged higher as investors awaited the Federal Reserve's latest rate decision. The pan-European Stoxx Europe 600 climbed 0.2%, Germany’s DAX gained 0.1% and the French CAC 40 added 0.3%.

"The surge in stocks from Monday's lows has slowed to a crawl today, as attention turns to the Fed decision," IG analyst Chris Beauchamp wrote. "No one wants to be too energetic in their trading ahead of such an important moment." Fed Chairman Jerome Powell will need to stress the central bank's commitment to fighting inflation without provoking another crisis in US regional banks, Beauchamp said.

The United Kingdom’s FTSE 100 closed up 0.4% as the usual pre-Fed calm lifted the market. A rise in U.K. CPI growth put pressure on the Bank of England, Beauchamp explained. "Hopes that the Bank of England would be able to stick to a dovish line tomorrow have been confounded, as a rise in CPI growth piles on the pressure. Sterling hasn't been able to hold its morning gains however, succumbing to the same pre-Fed nerves that have hit stocks," Beauchamp noted. Ocado Group ended the day as the FTSE’s biggest gainer, ending 1.9% higher, while British Land Co. ended the furthest in the red, down 6.0%.

North America

Following the central bank's latest decision, the S&P 500 lost 1.7% while the Dow Jones Industrial Average and the Nasdaq Composite both dropped 1.6%.

After a quarter-point increase, the Fed's rate target now stands at 4.75% to 5%. In projections released alongside its decision, the Fed indicated the target rate could end 2023 just barely above 5%, pointing to limited room for further increases this year.

Wednesday's rate hike was largely expected, although banking turmoil on both sides of the Atlantic gave the Fed a particularly tough call. Central bankers have been weighing their commitment to inflation-righting rate hikes against the possibility that more such moves could exacerbate recent turmoil for banks big and small.

So far, stocks have mostly weathered those convulsions smoothly. Financial shares have traded down sharply, but the broader S&P index has gained ground in March, seemingly reflecting a bet that any economic trouble could be counterbalanced by an easing of the Fed's interest rate policy. Last year, rising rates were a key driver of a brutal market-wide retreat.

But with an already cloudy economic outlook now further darkened by bank distress, buying into the stock market's optimism could prove shortsighted, said Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments.

"The banking issues are just confirming evidence to us that things are likely to get worse before they get better," Mr. Weiss said. The funds he oversees have been shunning stocks in favor of cash and safer bonds.

Since the weekend, the fear that gripped markets following the collapse of both Silicon Valley Bank and Credit Suisse has somewhat eased. "The US banking system is sound and resilient," the Fed said in its decision statement.

Calming market conditions this week helped persuade traders that a quarter-point rate increase Wednesday was most likely. Even as the Fed and other bank regulators rushed to ameliorate banking distress, a credible commitment to corralling inflation required them to tighten conditions further, said Brad Tank, chief investment officer for global fixed income at Neuberger Berman.

"If they just say, 'We're fighting inflation, but we're just not going to do anything about it right now,' that just creates a larger issue for the Fed," Mr. Tank said.

Adding complexity to the Fed's challenge are many investors' and economists' concerns that distress in the banking sector will itself slow the economy by curbing lending. Rising interest rates have strained some banks, pressuring them to raise their deposit rates while devaluing their assets.

"I do think this episode has calmed down, but it is going to extract a pound of flesh from the economy," said David Donabedian, chief investment officer at CIBC Private Wealth US.

But for now, inflation remains a stubborn problem too. Highlighting the issues facing Fed officials, data Wednesday showed the UK's inflation rate picked up last month, defying analysts' expectations that price rises would ease. The data adds to pressure on the Bank of England, which is set to decide on interest rates Thursday.