Image: Reuters Berita 24 English - After the US Federal Reserve delivered an aggressive rate hike and lowered its growth projections, Asian...
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| Image: Reuters |
Berita 24 English - After the US Federal Reserve delivered an aggressive rate hike and lowered its growth projections, Asian markets surged on Thursday, while longer-dated US government bond yields fell and the currency slid from two-decade highs.
The Federal Reserve raised interest rates for the first time since 1994 on Wednesday, raising the target federal funds rate by 75 basis points to a range of 1.5 percent to 1.75 percent. Officials at the Federal Reserve expect more gradual increases this year, with the federal funds rate expected to reach 3.4 percent by the end of the year.
Markets had already factored in the move, which came after data on Friday showed a sharper-than-expected spike in U.S. inflation in May, as well as a University of Michigan survey showing consumers' five-year inflation forecasts skyrocketing to their highest level since June 2008.
Fed Chair Jerome Powell said the survey was "very eye-catching" during a press conference following the Fed's last two-day policy meeting.
"(Inflation expectations) are beginning to appear excessive. That, I believe, is one of the reasons Powell wanted to do a 75... And I believe they will return in July "According to Joseph Capurso, the Commonwealth Bank of Australia's head of foreign economics.
"They need to bring inflation down. They're so far behind the times that it's almost comical."
Investors appeared to take solace in the belief that bringing prices under control in the short term will benefit the US economy in the long run. According to Fed predictions, economic growth would fall to a below-trend rate of 1.7 percent in 2024, and policymakers will lower interest rates.
MSCI's broadest index of Asia-Pacific equities outside Japan gained 0.40 percent in the morning session, after a stronger close on Wall Street. The KOSPI in Seoul increased by 1.24 percent, while Australian shares increased by 0.49 percent and Chinese blue-chips increased by 0.12 percent.
The Nikkei was up 1.70 percent in Tokyo.
The Dow Jones Industrial Average concluded the session with a 1% gain overnight. The S&P 500 increased by 1.46 percent, while the Nasdaq Composite increased by 2.5 percent.
In the Asian session, the dollar, which had fallen from a 20-year high following the Fed meeting, regained some ground.
"As the dollar fell and Wall Street gained, it appeared to be a classic example of 'buy the rumour, sell the fact," said Matt Simpson, senior market analyst at CityIndex. "However, given the Fed's current path of rate hikes, we really doubt the dollar has reached its peak."
The global dollar index, which measures the value of the dollar against a basket of six currencies, was last up 0.24 percent at 105.05, while the dollar rose nearly 0.6 percent against the yen to 134.61.
The euro fell to $1.0434, down roughly 0.1 percent.
The yield on two-year Treasury notes, which are sensitive to traders' views of Fed fund rates, climbed to 3.3060 percent from 3.2790 percent on Wednesday, reflecting expectations for additional Fed tightening.
The 10-year yield in the United States fell to 3.3696 percent from 3.3950 percent at the closing.
Oil prices have recovered after plunging more than 2% in the aftermath of the Fed's announcement. Brent crude was up 1% to $119.68 per barrel, while U.S. crude was up 1.1 percent to $116.58 per barrel.
As the dollar strengthened, gold fell marginally. Gold was recently seen at $1,830.19 per ounce, down 0.17 percent on the day. [GOL/]
