Asian markets reacted positively on Thursday to the US Federal Reserve’s decision to speed up tapering of its pandemic support and to focus on tackling inflation.
The dollar held its gains after the Fed finally laid out a more hawkish path spelling an end to the age of ultra-loose monetary policy and bringing an air of certainty to the region’s trading floors.
US policymakers said they would end their bond-buying programme in March, allowing them to begin hiking borrowing costs. A closely watched gauge of likely rate moves suggests they could lift them six times before the end of 2023.
The announcement helped soothe concerns on trading floors that officials were falling behind the curve and risking letting prices run out of control, with some warning of stagflation where economic growth stalls. It also comes as consumer inflation sits at a four-decade high.
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Fed boss Jerome Powell said that while prices would likely continue rising next year, he remained upbeat about the world’s top economy.
“Economic activity is on track to expand at a robust pace this year, reflecting progress on vaccinations and the reopening of the economy. Aggregate demand remains very strong,” Powell told reporters following the two-day policy meeting.
All three main indexes on Wall Street rallied after the decision, which analysts said removed a large amount of uncertainty among investors.
And much of Asia followed suit, with Tokyo up more than 2% as the dollar’s rise against the yen helped exporters, while Shanghai, Singapore, Seoul, Taipei, Mumbai, Manila and Bangkok were also up. US futures were also well up.
The Nikkei 225 jumped 2.13%, or 606.60 points, to end at 29,066.32, while the broader Topix index gained 1.46%, or 28.98 points, to 2,013.08.
Hong Kong Tech Hit
“Jerome Powell did a very good job threading the needle. He was very precise and offered no surprises,” market strategist Louis Navellier said.
“Investors were, and should be, delighted that rates will stay at near-zero levels until March. Moreover, the predictable rate rises are now fully baked into forecasts giving the markets the stability that will be needed to help markets move toward their next leg upward.”
Hong Kong reversed early losses and gained marginally as tech firms were hit by concerns that the United States would impose fresh sanctions on Chinese firms in what would be the latest volley in a standoff with Beijing in the sector. Sydney and Wellington fell.
The Hang Seng Index added 0.23%, or 54.74 points, to 23,475.50. The Shanghai Composite Index rose 0.75%, or 27.39 points, to 3,675.02, while the Shenzhen Composite Index on China’s second exchange gained 0.62%, or 15.81 points, to 2,559.31.
Omicron Variant Fears
London, Paris and Frankfurt opened with strong gains as eyes turn to policy decisions later in the day by the Bank of England and European Central Bank, which are also trying to face down soaring prices.
While the Fed news improved the mood, the surge in new Covid cases and the rise of the Omicron variant has fanned fears that containment measures will be ramped up, hitting holiday plans for millions and dealing another blow to the recovery.
Still, oil prices got a boost from data showing the sharpest drop in US stockpiles since September, suggesting demand remains strong for now.
“The market has been pricing in the worst-case scenario for demand amid the emergence of Omicron,” said Daniel Hynes, at Australia and New Zealand Banking Group. “That’s not to say we are out of the woods. There are still plenty of risks ahead.”
Key figures around 0820 GMT
Tokyo > Nikkei 225: UP 2.1% at 29,066.32 (close)
Hong Kong > Hang Seng Index: UP 0.2% at 23,475.50 (close)
Shanghai > Composite: UP 0.8% at 3,675.02 (close)
London > FTSE 100: UP 1.3% at 7,261.11
New York > Dow: UP 1.1% at 35,927.43 (close)
- AFP with additional editing by Sean O’Meara
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