Asian stocks rallied on Thursday after the US Federal Reserve raised its benchmark interest rate by three-quarters of a point and signaled more rate hikes to come to combat inflation.
Wall Street rallied on Wednesday after the Fed’s biggest rate hike since 1994, as investors eyed Chairman Jerome Powell’s comments suggesting future rate hikes could be more modest. . Larger-than-normal rate hikes have also been expected for weeks and come as no surprise.
The Bank of Japan will hold a two-day policy meeting, starting on Thursday. The Bank of Japan is under pressure to act due to downward pressure on the yen from US interest rate hikes and super low interest rates in Japan.
Investors sold yen and bought dollars in anticipation of a higher return on dollar holdings. Japanese politicians and central bankers have expressed concern about the yen’s fall, but no drastic policy changes are expected.
Early on Thursday, the US dollar rose to 134.56 Japanese yen from 133.82 yen. It recently topped 135 yen, a 20-year high. The euro is priced at $1.0438, down from $1.0447.
Japan’s benchmark Nikkei 225 index rose 1.8 percent in morning trade to 26,793.19. Australia’s S&P/ASX 200 rose 0.4% to 6,627.50. South Korea’s Kospi rose 1.2% to 2,476.61. Hong Kong’s Hang Seng fell 0.6% to 21,178.90, while the Shanghai Composite quickly lost its previous gain, falling 0.1% to 3,301.89.
There are also worries about how Japan’s economy will hold up as wages fall and growth slows.
The Finance Ministry said Japan recorded a trade deficit of nearly 2.4 trillion yen ($17.9 billion) last month, the 10th consecutive month in red ink. Japan increased its imports in May by the most since 1979, as soaring energy prices and a weak yen sent import values skyrocket. Resource-poor Japan imports almost all of its energy.
On Wall Street, the S&P 500 index rose 1.5% to 3,789.99 after surging through a rollercoaster trade shortly after the Fed’s latest move.
In the bond market, yields fell after Powell hinted at smaller rate hikes later this year. Earlier this week, yields rose to their highest in more than a decade on expectations of a more aggressive Fed.
The Fed is currently “not trying to cause a recession, let’s be clear about that,” Powell said. He called Wednesday’s big gain “preloads.”
The yield on the two-year Treasury note fell to 3.21% from 3.45% late Tuesday, with the biggest move coming after Powell said a 0.75 percentage point rate hike would be uncommon. variable. The yield on the 10-year Treasury note fell from 3.48% to 3.34%.
“The bond market is currently driving the broader market, and that will continue,” said Jay Hatfield, CEO of Infrastructure Capital Advisors.
The Dow Jones Industrial Average wobbled between gains and losses before ending 1% higher, at 30,668.53. The Nasdaq composite rose 2.5% to 11,099.15.
The S&P 500 index fell into a bear market earlier this week and Wednesday’s gain was its first in six days.
Some analysts warn the recovery could be short-lived given how deeply inflation has seeped into the economy.
“Chairman Powell painted as rosy as can be painted, and to achieve the picture he is painting, that path, a lot of things have to go in the right direction,” said Yung-Yu Ma, strategy investment analyst at BMO Wealth Management said. “It’s been a challenging road, and he admits it.”
All types of investments, from bonds to bitcoin, have fallen this year as high inflation forced central banks to quickly remove the backstops backed by markets early in the pandemic.
Even in the absence of a recession, higher interest rates affect the prices of investments. Hardest hit are those that have risen the most in the easy money era of super-low interest rates, including high-growth tech stocks and cryptocurrencies.
The economy is still largely on hold amid the red-hot jobs market, but it has shown some signs of difficulty in recent times. Sales at US retailers unexpectedly fell in May compared with April.
The cryptocurrency price continued to fall and bitcoin dropped to as low as $20,087.90, nearly 71% lower than the record high of $68,990.90 set late last year. It was down nearly 1% at $21,770 in afternoon trading, according to CoinDesk.
Powell said on Wednesday the Fed is moving “urgently” to bring interest rates closer to normal after a stunning report last week showed that consumer-level inflation unexpectedly accelerated last month. That hope was extinguished on Wall Street that inflation may have peaked.
The war in Ukraine has sent oil prices soaring because the region is a major energy producer. Meanwhile, COVID infections in China have resulted in factory closures and supply chain disruptions. It all helped drag the S&P 500 index down more than 20% from its record high set in early January, sending Wall Street into what investors call a bear market.
Many of those concerns are still around, which will likely make the market volatile.
In energy trading, the price of US benchmark crude rose $1.19 to $116.50 a barrel in electronic trading on the New York Mercantile Exchange. It fell $3.62 on Wednesday to $115.31 a barrel. Brent crude, the international standard, rose $1.01 to $119.52 a barrel.
AP business writer Stan Choe contributed.