Asian shares eased on Thursday after the Federal Reserve increased interest rates and used a more hawkish tone by predicting a slightly quicker tightening. Meanwhile, concerns about weak Chinese data and the US-China trade spat kept investors jittery.
Chinese retail sales and urban investment data were surprisingly weak. The data lowered investors’ risk appetite by putting doubts over the world’s second largest economy. China’s central bank also unexpectedly left interest rates on hold instead of following the Fed higher.
European shares are predicted to fall. Spread-betters are looking forward to lower opening. They expect Britain’s FTSE to open 0.4 percent lower, Germany’s DAX to open 0.3 percent lower, and France’s CAC to open 0.2 percent lower.
MSCI’s broadest index of Asia-Pacific shares excluding Japan dropped 0.1 percent. Shares of South Korea and Taiwan declined 1 percent.
Japan’s Nikkei decreased 0.6 percent. In mainland China, Shanghai Composite index is on its way to reach 20-month closing low, dropping 0.4 percent.
The Federal Reserve increased its benchmark overnight lending rate a quarter of a percentage point, putting it on a range of 1.75 percent to 2 percent, which was expected, against a backdrop of strong US economic growth.
Fed policymakers’ rates predictions indicated to two additional hikes by the latter part of the year, as suggested by board members’ median forecast.
“The Fed was slightly more hawkish. But at the same time, the Fed is raising rates because of a strong economy and not because of the need to contain inflation. So that might have helped curb market reactions,” according to Masayuki Kichikawa, who is chief macro strategist at Sumitomo Mitsui Asset Management.
Meanwhile, the looming concern of higher borrowing costs struck stocks while boosting US bond yields and the dollar. On the other hand, the overall market reaction was short-lived.
“When you look more closely, only eight board members saw two more hikes by the end of the year, compared to seven who saw one hike. In March it was seven versus eight. So you are talking about a change of only one board member after all,” said Norihiro Fujito, who is senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
“The fact that markets quickly reversed their course suggests the Fed’s decision was broadly in line with expectations,” he stated.
On Wall Street, the S&P 500 fell 0.40 percent, while the Nasdaq Composite lost 0.11 percent.
The 10-year US Treasuries yield reached a three-week high of 3.010 percent before it quickly sauntered back to 2.948 percent.
Fed funds rate futures are pricing in a little over 50 percent chance of a two rate hikes this year, which is a small change from around 50 percent priced in before the Fed’s decision.
Even if the Fed slightly sped up the pace of rate hikes in coming months, it hinted a reference from the statement that interest rates will possibly remain below levels that are expected to prevail in the longer run.
“That gave reassurance to markets that Fed policy board members were also discussing an eventual end in its process to remove stimulus,” stated Hiroshi Yokotani, who is a portfolio strategist at State Street Global Advisors.
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