Asia Morning Update

The Fed took off as expected but left the market with a more ‘gradual’ view with regards to future rate hikes. Reactions shot straight to both currencies and equities and Asian markets look set to pick up this wave of gains.

USD currencies
Source: Bloomberg

The Fed took off as expected but left the market with a more ‘gradual’ view with regards to future rate hikes. Reactions shot straight to both currencies and equities and Asian markets look set to pick up this wave of gains.

Market reactions had been telling post Federal Open Market Committee (FOMC) meeting. While the Fed boosted lending rates by 25 basis points, in line with expectations, the comments by Federal Reserve chair Janet Yellen in her press conference had been perceived as dovish. The Fed chair had reiterated that the committee expects a ‘gradual increase’ in rates on the back of evolving economic conditions and monetary policy ‘remains accommodative’ at present.

The abovementioned had sent the US dollar nosediving, with the USD index down 1 big figure from 101.50 levels to 100.50 levels into Thursday Asian hours. Certainly the market had been on high alert for a more aggressive view towards the path of rate hikes and the result had triggered the unloading of the USD. Major currencies had picked up against the USD post the meeting and emerging Asian currencies are expected to follow suit in Asian hours. XAU/USD, gold prices, had clocked a 1.6% gain overnight, up at $1220 this morning with the sharp downturn in the US dollar.

Meanwhile equities broadly breathed a sigh of relief on the FOMC conclusions, rallying across the comprehensive S&P 500. The financial sector had been the exception with the rate hike expectations kept status quo by the Fed. That said, the Fed is still expecting two more hikes for 2017 and three for the following year. This could continue to build a lenders cheer, borrowers fear situation for markets moving forward.

Asian markets look set to pick up on this gain. Early movers in this part of the world including the ASX 200 and KOSPI 200 were seen in black when last checked at 8.30am (Singapore time). The exception had been the Nikkei 225, an expected occurrence with the strengthening of the yen. This comes ahead of the Bank of Japan meeting decision. Notably, crude oil prices ticked up overnight, albeit marginally, after the US Department of Energy reported a break to the consecutive build up in crude stockpiles. This is likely to contribute to the rally for markets today.

For the packed day ahead, look to Bank of Japan (BoJ), Bank of England (BoE) and Swiss National Bank’s (SNB) interest rate decision. Regionally, the Bank of Indonesia will also be announcing their interest rate decision with no change expected.

Yesterday: S&P 500 +0.84%; DJIA +0.54%; DAX +0.18%; FTSE +0.15%

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

Find articles by analysts