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Dollar struggles, stocks up on dovish Fed but trade fears persist
HONG KONG, March 21, 2019 (BSS/AFP) – The dollar struggled in Asia on
Thursday after a surprisingly dovish Federal Reserve indicated it would not
lift interest rates this year and sounded a note of caution on the economy.
While the prospect of lower borrowing costs provided support to equity
markets, investors trod nervously on concerns about the world’s top economy.
Also, Donald Trump dented hopes for a quick resolution to the China-US
trade talks by warning tariffs would stay in place for some time after any
agreement is reached.
After a much-anticipated meeting the US central bank forecast that it would
not raise rates this year — a shift from an earlier projection of two — and
cut its annual growth outlook.
“It may be some time before the outlook for jobs and inflation calls
clearly for a change in policy,” Fed boss Jerome Powell said after the
meeting.
The announcement took markets by surprise, with most observers expecting it
would tee up at least one rate hike this year, and fuelled concerns about the
state of the economy.
The greenback sank against its major peers, except the Brexit-hit pound,
while higher-yielding units were also well up. The South African rand piled
on more than two percent, Mexico’s pesos jumped more than one percent and the
Australian dollar jumped one percent.
Most stock markets in Asia rose, with Hong Kong up 0.2 percent and Shanghai
0.5 percent higher. Singapore added 0.2 percent, Seoul climbed 0.9 percent
and Manila jumped 0.6 percent. Taipei and Jakarta also rose though there were
losses in Sydney and Wellington.
– EU has ‘lost patience’ –
However, there is some unease across trading floors after Trump’s remarks.
The president said that if a trade deal is reached between the world’s top
two economies, US tariffs would remain in place “for a substantial period of
time”.
“We have to make sure that if we do the deal with China, that China lives
by the deal,” he added.
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The comments dented optimism the two sides would reach an agreement to end
a standoff that has scythed global markets last year.
“This could be a major sticking point from the Chinese side,” said National
Australia Bank’s Ray Attrill. “We can but hope it’s all part of the ‘Art of
the Deal’, but in the meantime (it) means we can’t as yet fully price in a
trade deal next month, or later, with supreme confidence.”
Traders are also casting a wary eye on the Brexit saga after Prime Minister
Theresa May asked for a three-month extension to the March 29 deadline for
leaving the EU as she struggled to prevent an economically painful no-deal
divorce.
European Council President Donald Tusk said the EU could agree to the
request but only if British MPs pass her withdrawal deal, which they have
already rejected twice.
“The EU has clearly lost patience with Britain” said Jeffrey Halley, Senior
Market Analyst, OANDA.
“The EU appear to be taking matters into their own hands, addressing
parliament directly with a stark choice: sign off on the deal tout suite or
risk being kicked out on 29 March; or take a multi-year extension, hopefully
with a new referendum and/or government.”
The pound edged up against the dollar, supported mainly by the Fed
announcement, but there are fears of a sharp sell-off in the event of a no-
deal Brexit.
– Key figures around 0500 GMT –
Hong Kong – Hang Seng: UP 0.2 percent at 29,390.02
Shanghai – Composite: UP 0.7 percent at 3,111.01
Tokyo – Nikkei 225: Closed for a public holiday
Pound/dollar: UP at $1.3216 from $1.3189 at 2050 GMT
Euro/pound: DOWN at 86.42 pence from 86.52 pence
Euro/dollar: UP at $1.1421 from $1.1412
Dollar/yen: DOWN at 110.54 yen from 110.70 yen
Oil – West Texas Intermediate: DOWN eight cents at $60.15 per barrel (new
contract)
Oil – Brent Crude: UP 12 cents at $68.62 per barrel
New York – DOW: DOWN 0.6 percent at 25,745.67 (close)
London – FTSE 100: DOWN 0.5 percent at 7,291.01 (close)
BSS/AFP/HR/1155