Asia-Pacific markets mixed as investor sentiment remains fragile following Fed rate hike

SINGAPORE — Asia-Pacific markets rallied on Thursday tracking U.S. stocks after the Federal Reserve raised benchmark interest rates 75 basis points in a move that equates to the most aggressive hike since 1994.

The positive moves followed a tumble across the markets earlier this week following initial news of a strong move by the Fed and concerns of more Covid-related restrictions in mainland China mounted.

Japan’s Nikkei 225 rose 1.4% and it was a sea of green among the automakers and tech stocks. The Topix was up 1.26%.

Sony was up by more than 2%, Softbank Group rose by about 1.6% while Toyota jumped by 4%. Trade data released in the morning showed Japan ran a trade deficit after falls in the yen drove more imports.

In our view, the risks around a recession in 2023 can’t be ignored.
Kerry Craig
Global Market Strategist, J.P. Morgan Asset Management

In Hong Kong, the Hang Seng index fell by 0.5% with Tencent and Chow Tai Fook sinking by nearly 2 per cent in the first hour of trade.

In mainland China markets, the Shanghai Composite was muted, as it traded just below the flatline. The Shenzhen Component was up 0.36%.

In Australia, the S&P/ASX 200 was trading higher by about 0.5%. Rio Tinto, Fortescue Group and BHP were all pushing higher by nearly 2%.

Australia’s unemployment figures held steady at 3.9% in yet another signal that Australia’s Reserve Bank would, like the Fed and many other central banks, be staying on course to raise rates again. The unemployment rate has now been at 3.9% for three consecutive months but could fall to 3.5% at the end of the year, Capital Economics’ Ben Udy said.

Over in South Korea, the Kospi index also went up by 1.25% with big leaps by Samsung, Hyundai and Posco Holdings.

Following the rate hike in the U.S., Wall Street was volatile but market indexes rose to session highs after the Federal Open Market Committee took the level of its benchmark funds rate to a range of 1.5%-1.75% — the highest since just before the Covid pandemic began in March 2020.

Fed Chairman Jerome Powell also said during his afternoon press conference that, “either a 50 basis point or a 75 basis point increase seems most likely at our next meeting.”

The Dow Jones Industrial Average snapped a five-day losing streak, jumping 303.70 points, or 1%, to close at 30,668.53. The S&P 500 rose 1.46% to 3,789.99 while, the Nasdaq Composite gained 2.5% to end the day at 11,099.15.

The Fed said in a statement it was committed to bringing down inflation — currently at a high of 8.6 per cent — to 2%. It also said it would continue to reduce holdings of Treasury securities and agency debt and agency mortgage-backed securities.

Kevin O’Leary, chairman of O’Shares ETFs, says the aggressive 75 basis point rate hike is a signal the Fed has the inflation “bull by its horns” now.

A 1% hike would be better but for now, all signs pointed to the Fed “lassoing” inflation, he added.

Crucially, while the Fed has not flagged another 75 basis point rate hike for the July meeting, it has confirmed its commitment to returning inflation back to the 2% target and this meant the Fed might be willing to sacrifice the economy to achieve this, J.P. Morgan Asset Management Global Market Strategist Kerry Craig says.

“In our view, the risks around a recession in 2023 can’t be ignored,” Craig said.

Clifford Bennett, chief economist at ACY Securities, said a recession was imminent now that the Fed has signaled its intention to rein in inflation and “ignored that this would cause further economic pain.”

Currencies and oil

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 105.158 — turning downwards after hitting a high on Tuesday at 105.298.

The Japanese yen traded at 134.07 per dollar, strengthening markedly from earlier trading this week. The Australian dollar was at $0.7002, also jumping against the U.S. dollar after weakening to 0.68 earlier this week.

Oil prices were higher in the morning of Asia trading hours, with international benchmark Brent crude futures up 0.71% to $119.38 per barrel. U.S. crude futures also rose 0.93% to $116.41 per barrel.

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