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Asian markets rally, dollar down as Fed signals slower rate hikes
HONG KONG, Jan 31, 2019 (BSS/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 and Hong Kong each
climbed more than one percent.
– Trade talks in focus –
Shanghai was up 0.4 percent 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.
MORE/HR/1448
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ASIA-MARKETS-UPDATE 2 LAST HONG KONG
Elsewhere, Singapore rose 0.7 percent while Wellington, Mumbai, Jakarta
and Manila were sharply higher.
Seoul and Sydney, however, dipped.
In early trade London rose 0.6 percent, Paris added 0.7 percent and
Frankfurt gained 0.8 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 and Indonesia’s rupiah rallied one percent, while
the South Korean won was 0.4 percent higher. The New Zealand dollar, South
African rand and Russian ruble were also well up, while 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 0820 GMT –
Tokyo – Nikkei 225: UP 1.1 percent at 20,773.49 (close)
Hong Kong – Hang Seng: UP 1.1 percent at 27,942.47 (close)
Shanghai – Composite: UP 0.4 percent at 2,584.57 (close)
London – FTSE 100: UP 0.6 percent at 6,981.20
Dollar/yen: DOWN at 108.70 yen from 109.02 at 2200 GMT
Pound/dollar: UP at $1.3147 from $1.3111
Euro/dollar: UP at $1.1510 from $1.1483
Oil – West Texas Intermediate: UP 29 cents at $54.52 per barrel
Oil – Brent Crude: UP 43 cents at $62.08 per barrel
New York – Dow: UP 1.8 percent at 25,014.86 (close)
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