Asian markets rally, dollar down as Fed signals slower rate hikes
Federal Reserve boss Jerome Powell provided a boost to investors as he signalled a slower pace of interest rate hikes (SAUL LOEB)
Hong Kong (AFP) – Asian equities rallied and the dollar extended losses after the Federal Reserve signalled it would slow down its pace of interest rate hikes, providing some much-needed respite to investors fretting over the cost of borrowing.
Dealers are also keeping an eye on top-level talks between China and the United States aimed at resolving their long-running trade war, which kicked off on Wednesday.
The US central bank sparked a flurry of equity buying after chairman Jerome Powell said the case for lifting rates had “weakened somewhat” as the global economy stutters.
“In this environment, we believe we can best support the economy by being patient in evaluating the outlook before making any future adjustment to policy,” he said.
The Fed also said it could slow down the reduction of its securities holdings, which would also help keep rates lower.
“Wow — Powell to markets — we hear you and we have adjusted policy accordingly,” Chris Rupkey, chief financial economist at MUFG Union Bank, said.
The Fed “also caved on the balance sheet by saying interest rates are still the primary policy making tool, but they are prepared to adjust the pace of balance sheet normalisation if economic and financial developments require it”, Rupkey added.
The news provided a further boost to markets, which were dragged for most of 2018 by concerns that rising rates would make it costlier for them to borrow to invest.
Wall Street rallied, with dealers there also cheering healthy earnings from big-hitters, including Facebook and Boeing.
Those gains filtered through to Asia, where Tokyo ended the morning 0.9 percent higher.
– Trade talks in focus –
Hong Kong and Shanghai were also up as a gauge of factory activity in China improved slightly in January from last month.
While the Purchasing Managers Index (PMI) showed contraction, it beat forecasts, though observers warned the figures were helped by producers stepping up work ahead of the Lunar New Year next week.
Elsewhere, Singapore rose 0.5 percent and Sydney added 0.2 percent, while Wellington and Manila were sharply higher.
Seoul, however, dipped 0.1 percent.
The dovish signal from the Fed sent the dollar tumbling against most other currencies Wednesday and extending the losses in Asia.
The greenback remained stuck below 109 yen, while the euro and the pound — which have suffered some turbulence over the Brexit saga in recent days — were also slightly higher.
The Australian dollar rallied 0.8 percent, while the South Korean won was 0.4 percent higher and Indonesia’s rupiah put on 0.4 percent. The New Zealand dollar, the South African rand and the Russian ruble were also well up.
China’s yuan was sitting at a six-month high.
Focus now turns to the much-anticipated trade talks, with China’s top economic envoy in Washington as the world’s economic superpowers try to bring an end to a long-running crisis that has sent shudders through global markets.
However, the two-day talks are taking place under a cloud after the US charged Chinese telecom titan Huawei on numerous counts of fraud and tech theft.
– Key figures around 0230 GMT –
Tokyo – Nikkei 225: UP 0.9 percent at 20,740.64 (break)
Hong Kong – Hang Seng: UP 0.8 percent at 27,871.02
Shanghai – Composite: UP 0.6 percent at 2,590.40
Dollar/yen: DOWN at 108.89 yen from 109.02 at 2200 GMT
Pound/dollar: UP at $1.3117 from $1.3111
Euro/dollar: UP at $1.1493 from $1.1483
Oil – West Texas Intermediate: UP 34 cents at $54.57 per barrel
Oil – Brent Crude: UP 53 cents at $62.18 per barrel
New York – Dow: UP 1.8 percent at 25,014.86 (close)
London – FTSE 100: UP 1.6 percent at 6,941.63 (close)
— Bloomberg News contributed to this story —
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