Asian shares gain after Fed assurance on rates lifts Wall St
TOKYO Asian shares rose Thursday after the Federal Reserve raised their key interest rate by three quarters of a percentage point and indicated that more rate hikes would be coming to combat inflation.
Wall Street rose Wednesday after the Fed’s largest hike since 1994,. Investors took comfort in Chair Jerome Powell’s comments that future rate increases might be less drastic. It was not surprising that the Fed’s unexpectedly large rate hike had been expected for weeks.
The Bank of Japan will hold a two-day policy conference, which begins Thursday. Given the downward pressures on yen due to U.S. rate hikes, and super-low Japanese rates, the Japanese central bank is under pressure.
Investors are selling yen and purchasing dollars in anticipation of higher yields on dollar-denominated holdings. The central bank chief and Japanese politicians expressed concern about the declining yen but have not made any major policy changes.
Early Thursday, the U.S. dollar edged up to 134. 56 Japanese yen from 133. 82 yen. It recently topped 135 yen, the highest level in 20 years. The euro cost $1. 0438, down from $1.0447.
Japan’s benchmark Nikkei 225 surged 1.8% in morning trading to 26,793.19. Australia’s S&P/ASX 200 gained 0.4% to 6,627.50. South Korea’s Kospi jumped 1.2% to 2,476.61. Hong Kong’s Hang Seng shed 0.6% to 21,178. 90, while the Shanghai Composite quickly lost earlier gains to inch down 0.1% to 3,301.89. Worries about the Japanese economy are growing as wages fall and growth slows.
The Finance Ministry reported Japan recorded a nearly 2.4 trillion yen ($17.9 billion) trade deficit last month, its 10th straight month of a red ink. Japan imported its highest amount of goods and services for May since 1979,. This was due to rising energy prices and a weaker yen. Japan is resource-poor and imports almost all of its energy.
On Wall Street the S&P 500 rose 1.5% to 3 ,789. 99 after whipping through roller-coaster trading immediately following the Fed’s latest move.
After Powell hinted at lower rate increases later in the year, Treasury yields fell. On the expectation of a more aggressive Fed, yields rose to their highest level in over a decade earlier this week.
Powell stated that the Fed is not trying to incite a recession right now. 68% from 3. 21% from 3. 45% late Tuesday, with the biggest move happening after Powell said 0. 75 percentage point rate hikes wouldn’t be common. The yield on the 10-year Treasury pulled back to 3. 34% from 3.48%. Jay Hatfield, CEO at Infrastructure Capital Advisors, stated that the bond market is driving the wider market right now and that it will continue to do so.”
The Dow Jones Industrial Average swung between gains and losses before finishing 1% higher, at 30,668.53. The Nasdaq composite jumped 2.5%, to 11,099.15.
The S&P 500 fell into a bearish market earlier in the week. Wednesday’s gain was the first in six days. Some analysts warned that the rally could be short-lived due to the extent of inflation.
“Chair Powell painted a rosy picture, but to get that pathway, a lot must go right,” said Yung Yu Ma, chief investment strategist at BMO Wealth Management. “It’s a difficult path, and he admitted that.”
All types of investments, from bonds, to bitcoin, have fallen this year due to high inflation forcing central banks to quickly remove support placed underneath markets early in the pandemic.
Higher interest rates can hurt investment prices even if there is no recession. The most affected were those who soared the highest in the easy-money era with ultralow interest rates. This included high-growth technology stocks, cryptocurrencies, and high-growth tech stocks.
The economy is still strong despite a hot job market. However, it has recently shown signs of distress. In May, sales at U.S. retailers unexpectedly fell from April.
Cryptocurrency prices continued to sink, and bitcoin dropped as low as $20,087. 90, nearly 71% below its record of $68,990. 90 set late last year. It was down nearly 1% at $21,770 in afternoon trading, according to CoinDesk.
Powell stated Wednesday that the Fed is working “expeditiously to bring rates closer to normal levels” following last week’s shocking report which showed inflation at the consumer level unexpectedly increased last month. Wall Street was disappointed by this report, which showed inflation at the consumer level had unexpectedly accelerated last month.
The war in Ukraine has pushed oil prices up because the region is a major energy producer. The closure of factories and disruptions in supply chains have all been caused by COVID infections in China. It all helped pull the S&P 500 down more than 20% from its record set in early January, putting Wall Street into what investors call a bear market. Many of these concerns remain, which will likely keep markets volatile. In energy trading, the benchmark U.S. crude rose $1. 19 to $116. 50 a barrel in electronic trading on the New York Mercantile Exchange. It lost $3. 62 on Wednesday to $115. 31 a barrel. Brent crude, which is the international standard, was $1 more. 01 to $119. 52 a barrel.
AP Business Writer Stan Choe contributed.
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama
I have been writing professionally for over 20 years and have a deep understanding of the psychological and emotional elements that affect people. I’m an experienced ghostwriter and editor, as well as an award-winning author of five novels.