Sep 19, 2019: Asian markets mostly rose Thursday after the Federal Reserve cut interest rates but investors were left unsure about its next possible move, with focus now on whether the Bank of Japan will continue the global central bank easing drive.
While the Fed met expectations with its 25-basis-point reduction, the lack of strong forward guidance disappointed many, who were also concerned about a growing split in the policy board between hawks and doves.
Equity traders have spent much of this month in a positive mood, betting that central banks are taking a more accommodative tone with monetary policy to support the stuttering global economy.
The European Central Bank unveiled a fresh round of bond-buying stimulus and another rate cut this month, and there had been hopes the Fed would indicate a further reduction in borrowing costs this year.
Fed boss Jerome Powell said the board did not expect a recession but trade uncertainty is creating “cross winds”, hitting business investment and exports. He added the bank will “will act as appropriate” to maintain economic growth.
“After raising rates nine times in the past four years, the Fed kicked off the wave of global central bank easing with their dramatic dovish pivot in January,” said Tim Foster at Fidelity International.
“But simple rate cuts are now rather old-fashioned compared to the ECB's comprehensive and complicated package of easing measures last week.”
– 'Lack of conviction' –
And Edward Moya, a senior market analyst at OANDA, said the Fed could regret its decision to not be more forthright.
Its “lack of conviction in signalling more rate cuts will probably be a policy mistake that is wasting the effectiveness of the first two rate cuts”, he said in a note. “The Fed seems set on waiting for a couple geopolitical risks to rattle the economy before committing to a full-fledged easing cycle.”
Still, with the BoJ due to end its latest policy meeting later Thursday shares in Tokyo rose one percent going into the break.
Sydney was up 0.7 percent, Seoul rose 0.6 percent, Singapore added 0.1 percent and Wellington gained 0.3 percent.
But Hong Kong, which has struggled all week under the weight of concerns about the impact on the economy of long-running, sometimes violent protests in the city, fell 0.6 percent. Shanghai was flat.
The easing stance taken by central banks comes as traders try to juggle a series of — mostly negative — issues including the China-US talks, the slowing economy and fresh geopolitical concerns after the weekend Saudi oil plant strike.
“In the end, we are keeping a keen eye on trade discussions, on recently concerning oil dynamics, on market liquidity, on Brexit, on the pace of slowing employment conditions, and as always on the inflation readings” to work out when the Fed will cut again, said Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income.
Oil markets have settled for now — both main contracts were slightly higher Thursday — after the surge in prices at the start of the week caused by the Saudi blasts. But traders remain on alert for further developments including the US and Saudi response, with both putting the blame at Iran's door.
The crisis has reignited worries about a military flare-up in the oil-rich Gulf region, which would send prices soaring and likely hit stock markets.
A warning from European Commission chief Jean-Claude Juncker that the risk of a no-deal Brexit “remains very real” was putting downward pressure on the pound, with both sides still unable to come up with a solution to the crucial “Irish backstop” issue.
– Key figures around 0230 GMT –
- Tokyo – Nikkei 225: UP 1.0 percent at 22,183.53 (break)
- Hong Kong – Hang Seng: DOWN 0.6 percent at 26,603.21
- Shanghai – Composite: FLAT at 2,986.72
- West Texas Intermediate: UP 15 cents at $58.26
- Brent North Sea crude: UP eight cents at $63.68 per barrel
- Euro/dollar: DOWN at $1.1030 from $1.1034 at 2100 GMT
- Dollar/yen: DOWN at 108.20 yen from 108.43 yen
- Pound/dollar: DOWN at $1.2470 from $1.2481
- Euro/pound: UP at 88.45 pence from 88.40 pence
- New York – Dow: UP 0.1 percent at 27,147.08 (close)
- London – FTSE 100: DOWN 0.1 percent at 7,314.05 (close)