Australia

Australian shares are set to tumble following a sharp reversal in US stocks that took the Nasdaq Composite to its biggest one-day loss since June 2020.

ASX futures were down 113 points or 1.6% at 7213 as of 8.00am on Friday, suggesting a negative start to trading.

The Nasdaq Composite Index fell 5%, dragged by major declines at Tesla and Amazon.com. The S&P dropped 3.6% with 95% of companies moving lower. The Dow slid 3.1%, erasing Wednesday's gains. The major indexes declined between 7.02 and 9.38 percentage points from Wednesday's highs to Thursday's lows, according to Dow Jones Market Data, their largest swings since the first half of 2020.

Investors fled markets a day after shares rallied higher thanks to US Federal Reserve Chairman Jerome Powell playing down the possibility of a jumbo 0.75% rate hike at a future meeting. Markets had been pricing in such a move for the Fed’s June meeting and jumped as Powell pushed back on the more hawkish move.

The optimism behind that rally was long gone Thursday, when selling was widespread, though most intense in the technology shares that have fallen on hard times in 2022 after years of leading the market advance.

"The market yesterday was a relief rally," said Seema Shah, chief strategist at Principal Global Investors. By Thursday, she said, the realities of a more challenging environment for stocks were starting to settle in, including higher rates, difficult earnings comparisons and a stronger US dollar that weighs on overseas earnings at multinational firms.

Locally, the S&P/ASX 200 closed 0.8% higher at 7364.7, snapping a three-day losing streak amid broad-based gains.

Ten of 11 sectors rose as the benchmark followed a strong lead by US equities, which rallied to their largest one-day gain since 2020.

Australia's heavyweight financial sector closed flat. Tech stocks led local gains, with Computershare, WiseTech and Xero putting on between 2.4% and 3.4%.

Shares of real-estate investment trusts bounced after falling steeply over the previous two days, when they were pushed lower by fears that rising interest rates could lead to loan defaults.

QBE rose 5.5% to a two month high of $12.68 after the insurance giant announced gross written premium rose 19% in the first quarter, compared to a year ago.

Commodity stocks rose strongly, with lithium miners Liontown and Pilbara Minerals the best-performing ASX 200 components.

In commodity markets, gold futures gained 0.4% to $US1875.70 an ounce; Brent crude oil added 0.8% to $US111.06 a barrel; iron ore jumped 2% to US$145.80 a tonne.

Australian bonds rallied sharply in line with equities. The yield on the Australian 2 Year government bond fell to 2.69% while the 10 Year retreated to 3.38%. Overseas, US resumed their selloff and yields on US Treasury 2 Years rallied to 2.70%, while the 10 Year popped to 3.04%.

The Australian dollar retraced yesterday’s gains, buying 71.09 US cents as of 7.00am AEST, down from the previous close of 72.58. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, jumped to 95.88.

Asia

Chinese stocks ended the session mixed, as the market resumed trading after a week-long holiday. The benchmark Shanghai Composite Index rose 0.7% to settle at 3067.76, while the Shenzhen Composite Index also added 0.7% to 1891.66. The tech-heavy ChiNext Price Index was the only loser, falling 1.3% Lower at 2288.40. Home-appliance makers provided most of the support, as the sector soared after several major companies posted strong 1Q earnings. But EV-battery makers offset the gains, as rising margin concerns sent CATL tumbling 8.1%.

Hong Kong stocks ended lower, in line with broad weakness in regional equities markets. The benchmark Hang Seng Index edged down 0.4% to settle at 20793.40. A wide range of sectors weighed on the market. Biotech firm Wuxi Biologics plunged 5.4%, real estate management company Country Garden Services dropped 3.8% and electronics producer Sunny Optical was down 3.3%. China's tech giants extended their downturn, albeit with narrower losses. NetEase lost 1.7% and Tencent shed 0.5%.

Japanese share markets were closed for a public holiday.

Europe

European stocks closed mostly lower, giving up earlier gains, as US stocks reversed a rally from the previous session following the Federal Reserve's latest policy decision.

The pan-European Stoxx 600 dropped 0.7%, the German DAX fell 0.5% and the French CAC 40 declined 0.4%. The Fed yesterday raised rates as expected but cooled expectations for more aggressive tightening, lifting US stocks.

However, a weak start to US trading today is now "starting to act as a drag" on European stocks, CMC Markets analyst Michael Hewson says in a note.

London’s FTSE 100 rose 0.1% as sterling dropped after the Bank of England raised interest rates Thursday but issued a weaker economic outlook.

North America

The stock market took its biggest U-turn since the early days of the pandemic Thursday, with the Dow Jones Industrial Average posting its largest decline this year just 24 hours after its largest gain since 2020.

The reversal wiped out the euphoria that reigned on Wall Street Wednesday in the wake of Federal Reserve Chairman Jerome Powell's comment that the Fed wasn't "actively considering" raising interest rates by 0.75 percentage point at a future meeting. With inflation at its highest level since the early 1980s, markets had been anticipating such an increase and the prospect of a slower rise in rates set off a furious buying spree in the late afternoon.

The optimism behind that rally was long gone Thursday, when selling was widespread, though most intense in the technology shares that have fallen on hard times in 2022 after years of leading the market advance.

Tesla dropped 8.3% and Amazon.com fell 7.6%. Bank stocks, a key indicator of economic expectations, dropped 2.7%, according to the KBW Nasdaq index of large commercial lenders. The Russell 2000 index of smaller US companies fell 4%.

"The market yesterday was a relief rally," said Seema Shah, chief strategist at Principal Global Investors. By Thursday, she said, the realities of a more challenging environment for stocks were starting to settle in, including higher rates, difficult earnings comparisons and a stronger US dollar that weighs on overseas earnings at multinational firms.

Thursday's rout is the latest instance of the volatility that has characterized markets this year and highlights the unease over the likely impact of the Fed's rate-increase campaign, which aims to reverse years of easy policy.

That unease is amplifying the tendency of many investors to sell some shares into market rallies, in a bid to rebalance portfolios that may have become too concentrated in the shares of firms that benefited from pandemic-era stimulus.

The Nasdaq Composite Index fell 647.16 points, or 5%, to 12317.69, the largest one-day percentage decline since June 2020. The S&P dropped 153.30 points, or 3.6%, to 4146.87, and the Dow slid 1,063.09 points, or 3.1%, to 32997.97, erasing Wednesday's gains. The major indexes declined between 7.02 and 9.38 percentage points from Wednesday's highs to Thursday's lows, according to Dow Jones Market Data, their largest swings since the first half of 2020.

In the bond market, the yield on the benchmark 10-year Treasury note rose to 3.066%, the highest yield level since November 2018. Bond prices fall when yields rise.

The pullback came one day after major US stock indexes soared, with the Dow climbing more than 900 points, its biggest one-day gain since 2020. On Wednesday, central bank officials approved a half-percentage-point interest rate increase, lifting the federal-funds rate to a target range between 0.75% and 1%.

"The Fed is reducing liquidity in the markets and that's driving up volatility, and so this could be our new normal here for a bit until the Fed gets inflation under control and changes the policy," said John Ingram, chief investment officer and partner at Crestwood Advisors.

Even with a larger interest-rate increase off the table in the coming months, investors are still facing the most aggressive tightening of US monetary policy since 2000 -- the last time the central bank last raised rates by a half-point. Though many investors say the market setup then was drastically different from the one now -- with valuations then higher and many of the highest-flying dot-com firms lacking long-term business prospects -- it isn't lost on them that that year ended with sharp declines for the major indexes.

Many investors are now questioning how high the Fed might raise rates over the next two years amid soaring inflation and how that might ripple across the economy and corporate profits.

"It's like when we all take medication, it's got to build up in your system and these fed-fund rises always have a lag time," said Tim Horan, co-chief investment officer of fixed income at Chilton Trust.

On Thursday, those jitters were seen across the market. Growth stocks were particularly hard hit. Chip makers Advanced Micro Devices, Nvidia and NXP Semiconductors all declined at least 4%. Megacap technology stocks also pulled back, with Meta Platforms falling 6.8%, Netflix declining 7.7% and Apple slipping 5.6%.

Higher interest rates can diminish the allure of technology stocks by reducing the value that investors place on their future earnings. Higher yields in general also boost the attractiveness of fixed-income products versus riskier assets such as stocks.

Some of the stocks that were darlings in the pandemic also lost ground. Etsy tumbled 17%, after the online marketplace released guidance below expectations for the current quarter. eBay lost 12% after cutting guidance on impacts from the war in Ukraine.

Shares of Wayfair also slid, losing 26% after the online home goods retailer posted a bigger-than-expected quarterly loss. Shopify's first-quarter earnings missed analysts' expectations, sending the stock down 15%.

"We struggle to see who is going to be a massive buyer of equities in the next couple weeks," said Viraj Patel, global macro strategist at Vanda Research. "It's a waiting game for that catalyst...You need more conviction from the data, either to show that inflation has topped out or the economy is slowing and that the Fed won't need to be as aggressive."

Bucking the trend, shares of Twitter jumped 2.7% after Tesla Chief Executive Elon Musk said he has received letters from investors committing more than $7 billion in fresh financing to boost the equity part of his offer to buy the social-media company. Last month, Twitter agreed to a deal with Mr. Musk to take the company private for $54.20 a share.

Booking Holdings jumped 3.3% after its revenue exceeded expectations and it said it has seen strengthening of global travel trends in the current quarter.

Assets that investors perceive as safer were among those to rally Thursday as money managers looked for havens as stocks and bonds fell in tandem. Even after Wednesday's rally, some strategists and investors said they were hesitant about the stock market's outlook in the weeks and months ahead.

"If they try to do too much and the market comes unglued, then they've [Fed] kind of shot themselves in the foot because it will make it difficult to do future rate hikes," said Jordan Kahn, chief investment officer at ACM Funds. "That's the fine line the Fed is trying to walk -- to do as much [rate increases] as they think the market can digest without upsetting it too much."

Mr. Kahn says his firm is holding higher cash balances than usual. Within the stock market, he is bullish on the energy and materials sectors, predicting they will continue to benefit from supply-demand imbalances.

In oil markets, Brent crude, the international benchmark for oil, rose 0.7% to $110.90 a barrel. On Wednesday, Brent logged its largest one-day gain in more than three weeks after the European Union proposed a ban on imports of Russian crude within six months and on refined oil products from the country by the end of the year. The Organization of the Petroleum Exporting Countries and its allies, together called OPEC+, met Thursday to discuss production targets.

The WSJ Dollar Index, which measures the US currency against a basket of 16 others, rose 1.1%. On Wednesday, the index tumbled 0.9%, its largest decline since November 2020. The dollar's status as the world's reserve currency makes it a particularly attractive haven for investors.

Gold prices, another preferred haven, also climbed, rising 0.4% to $1,874 a troy ounce.