Thursday, Asian markets mostly climbed and the dollar fell, reversing a Wall Street drop on hopes that the Federal Reserve’s latest interest rate hike would be the last.
The gains came despite the fact that the US central bank’s chief, Jerome Powell, dashed hopes that it would cut borrowing costs later this year to calm banking industry fears.
The recent turmoil created by the failure of two US banks and the takeover of Credit Suisse has fueled speculation that central banks will pause their anti-inflationary monetary tightening campaign.
But on Wednesday, officials announced a ninth straight increase in the cost of borrowing as they put their emphasis on containing prices, though the 25-basis-point rise was half of what was expected at the start of the month.
According to Powell
Powell also told journalists that “rate cuts are not in our base case”. Warned that there needed to be more supervision and regulation of banks to prevent another crisis.
Speculation had been swirling that officials would announce a cut as the collapse of Silicon Valley Bank and Signature Bank. Which has been blamed on the impact of more than a year of rate hikes.
Analysts said the Fed had to walk a thin line as announcing a pause could have fuelled worries. There was more to the banking sector’s woes than met the eye.
Powell added that the crisis in the banking sector was likely to bring “tighter credit conditions for households and businesses”.
His comments came as Treasury Secretary Janet Yellen told lawmakers that authorities were not looking at a blanket increase in deposit insurance for banks.
Fed’s policy outlook
“Balancing the Fed’s desire to keep its pressure on inflation. And the reality of tightening credit conditions and bank lending appetite. We think the Fed could still deliver one more 25 basis point hike in May,” said Tai Hui, of JP Morgan Asset Management.
“The Fed’s policy outlook is not only going to be ‘data dependent’ on inflation and jobs. But increasingly concerned about the potential stress in the banking sector and repercussions on the broader economy.”
After a weak start, Asian markets were mixed, with support coming from a weaker dollar as traders bet that the Fed rate is coming toward the end of its tightening cycle.
Powell “emphasised that recent turmoil will likely tighten credit conditions and limit Fed hikes; hence the US dollar is weakening hard”, said SPI Asset Management’s Stephen Innes.
Hong Kong led gains, adding more than two percent thanks to a rally in tech firms, while Shanghai, Seoul, Taipei, Mumbai, Bangkok and Wellington were also up.
However, Tokyo, Sydney, Singapore and Manila slipped.
London, Paris and Frankfurt opened lower.
John Bromhead, of Australia & New Zealand Banking Group, was upbeat about the outlook.
“I suspect now the major risk event is out of the way, risk-tone can improve through the day,” he said.
Oil prices fell again after a recent rise as traders fret over the effect on demand from more rate hikes and a possible slowdown in economic activity.
“Clearly, macro (data) will remain the key driver for price direction in the short term,” said ING Groep NV’s Warren Patterson.
“Comments from Yellen related to a blanket deposit insurance appear to have put some renewed pressure on risk assets, including oil.”
Key figures around 0820 GMT –
Tokyo – Nikkei 225: DOWN 0.2 percent at 27,419.61 (close)
Hong Kong – Hang Seng Index: UP 2.3 percent at 20,049.64 (close)
Shanghai – Composite: UP 0.6 percent at 3,286.65 (close)
London – FTSE 100: DOWN 0.5 percent at 7,533.12
Euro/dollar: UP at $1.0909 from $1.0860 on Wednesday
Pound/dollar: UP at $1.2320 from $1.2273
Euro/pound: UP at 88.57 pence from 88.47 pence
Dollar/yen: DOWN at 130.91 yen from 131.38 yen
West Texas Intermediate: DOWN 1.0 percent at $70.21 per barrel
Brent North Sea crude: DOWN 0.9 percent at $76.03 per barrel
New York – Dow: DOWN 1.6 percent at 32,030.11 (close)