Hong Kong (AFP) – Most equities rose Thursday after the Federal Reserve hiked interest rates for the first time in three years and boss Kevin Warsh sounded a hawkish note that ramped up bets on another increase as officials fight surging inflation. Investor sentiment was also given a lift from a further dive in oil prices, which was fueled by supply hopes after Saudi Arabia moved to restore some capacity from a pipeline it closed at the weekend following drone attacks.
In a unanimous decision, the Fed lifted borrowing costs for the first time since 2023, defying President Donald Trump’s demand for cuts, as Warsh stressed the need to combat inflation that has been “too high” for “too long.” “We removed a dose of accommodation so that financial and credit conditions would be more consistent with our ultimate objectives,” Warsh said after the announcement. “Today’s action starts to show we’re serious about this, and we will deliver on the price stability objective.”
The decision was announced along with a graph showing the vast majority of Fed policymakers saw at least one more hike likely necessary before the end of the year. Traders now see an October hike as being a 50:50. While Wall Street’s three main indexes ended Wednesday in the red, Asian traders took the 25-basis-point lift more positively, with analysts saying it shored up credibility in the central bank and provided some reassurance over officials’ determination to beat inflation. Long-term government bond yields — which this week touched two-decade highs — fell as investors pared back their inflation expectations, which at 3.4 percent is currently well above the bank’s two percent target.
“Removing a dose of accommodation is not the language of a central bank that believes it has completed the job,” said Stephen Innes at Quintex Intel. “It suggests policy was still providing support before Wednesday and may not yet be restrictive after it.” The hike removed the immediate credibility question. The explanation created a new argument about how much tightening remains.
Christian Scherrmann at DWS added: “Overall, we believe the main motivation this time was credibility, given bond market pricing and recent developments in oil markets.” Still, he added: “Despite his hawkish stance, Fed Chair Warsh’s optimistic outlook on the economy may be music to many ears.” And Janus Henderson’s Daniel Siluk said that “absent action, the US central bank would be at risk of denting its credibility in a manner that could unmoor inflation expectations and materially force a repricing of risk across financial markets.”
Equity markets across Asia were mostly higher Thursday. Tokyo, Sydney, Singapore, Taipei, Wellington, Mumbai, Bangkok, and Jakarta all advanced, though Hong Kong and Shanghai dipped, while Seoul was flat. London, Paris, and Frankfurt opened higher. However, Tai Hui, of JP Morgan Asset Management, warned: “We think the chance of U.S. policy rates returning to above five percent is still limited. Nonetheless, a catalyst to extend the equity bull market (lower interest rates) is looking unlikely in the foreseeable future.”
The news angered Trump, who called Warsh a “good man” who had “a hostile board.” “They’re raising the rates to make Trump do as bad as they can possibly do…So they’re raising that only for political reasons, and that’s a raise against Trump,” he complained. While the Middle East crisis continues to weigh heavily on sentiment and oil prices above $100 a barrel, investors took some cheer from reports that Saudi Arabia is looking to return about half the capacity of its cross-country oil pipeline within days. The East-West conduit was shut last week after Yemen’s Iran-backed Houthis targeted it. State-run Saudi Aramco said it was looking to get back up to full capacity in about six weeks, Bloomberg cited sources as saying.
The news sent crude prices tumbling around three percent Wednesday, and they extended the losses Thursday by dropping more than one percent. The dollar retreated against its peers after rallying Wednesday on the back of the Fed rate move and Warsh’s remarks. Eyes are now on decisions by the central banks of Britain and Japan, with the latter also expected to hike as it looks to fend off a rise in inflation and a weaker yen.
– Key figures at around 0715 GMT –
Tokyo – Nikkei 225: UP 0.3 percent at 64,136.25 (close)
Hong Kong – Hang Seng Index: DOWN 0.6 percent at 24,562.63
Shanghai – Composite: DOWN 0.4 percent at 3,875.60 (close)
London – FTSE 100: UP 0.4 percent at 10,731.36
West Texas Intermediate: DOWN 1.5 percent at $100.93 per barrel
Brent North Sea Crude: DOWN 1.6 percent at $104.10 per barrel
Dollar/yen: DOWN at 155.58 yen from 156.37 yen on Wednesday
Euro/dollar: UP at $1.1481 from $1.1464
Pound/dollar: UP at $1.3399 from $1.3377
Euro/pound: DOWN at 85.68 pence from 85.69 pence
New York – Dow: DOWN 1.2 percent at 51,461.90 (close)
© 2024 AFP
