Equities in Asia diverged while the dollar fell against other currencies on Thursday as traders considered what the Federal Reserve’s rate increase and accompanying comments signalled about the future path of US borrowing costs.
Japan’s Topix shed 0.3 per cent and Australia’s S&P/ASX 200 dropped 0.7 per cent, while Hong Kong’s Hang Seng index added 1.7 per cent, China’s CSI 300 gained 0.8 per cent and South Korea’s Kospi was flat.
The dollar fell 0.3 per cent against a basket of other currencies. The yen increased 0.6 per cent to trade at ¥130.64 per dollar, the won climbed 1.4 per cent to Won1279.50 and the renminbi rose 0.8 per cent to Rmb6.8255.
European futures pointed lower on Thursday, with contracts for the Euro Stoxx 50 and the FTSE 100 down 0.5 per cent and 0.3 per cent, respectively.
On Wednesday, the Fed increased its benchmark lending rate 0.25 percentage points to a target range of 4.75 per cent to 5 per cent.
Traders have been split on whether a statement from the central bank, which omitted previous references to the need for “ongoing” rate rises, signalled the Fed was close to the end of its tightening cycle.
“The Fed still feels additional tightening may be needed, but downshifted . . . removing the plurality on the amount of tightening remaining,” said Tai Hui, chief market strategist for Asia-Pacific at JPMorgan Asset Management.
“Balancing the Fed’s desire to keep its pressure on inflation, and the reality of tightening credit condition and bank lending appetite, we think the Fed could still deliver one more 25 bps hike in May.”
The Fed has a tough decision to make. Inflation remains high, but the collapse of technology-focused lender Silicon Valley Bank and the UBS takeover of Credit Suisse over the weekend have caused turmoil in the global financial system.
The tremors have spread to other regional lenders in the US, with San Francisco-based First Republic this week hiring advisers to explore options including a sale.
Banks in turmoil
The global banking system has been rocked by the collapse of Silicon Valley Bank, Signature Bank and the last-minute rescue of Credit Suisse by UBS. Check out the latest analysis and commentary here
US Treasuries advanced on Thursday, with the yield on the 10-year note falling 0.05 percentage points to 3.45 per cent. The yield on the two-year note, which is more closely linked to short-term interest rate expectations, declined 0.10 percentage points to 3.88 per cent. Yields move inversely to price.
Pricing in futures markets suggests investors now expect US rates to peak at about 4.9 per cent in May, before falling to 4.3 per cent by the end of the year.
Oil prices declined as traders digested the Fed increase. West Texas Intermediate, the US marker, shed 1 per cent in the morning to trade at $70.17 per barrel, putting it on track to break a three-session winning streak, while international benchmark Brent crude fell 0.8 per cent to $76.06.
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