Shanghai (Reuters) – As investors continued to analyse the implications of soaring inflation and an aggressive prognosis for policy tightening from global central banks, Asian markets fell and the dollar regained its footing on Thursday.
Futures for the Euro Stoxx 50 index for the whole region and the German DAX went up by about 0.4% a day after the European Central Bank said it would do more to stop a sell-off in the bond market.
Futures on the FTSE fell 0.1% because people thought the Bank of England would raise rates to fight inflation.
After the U.S. Federal Reserve on Wednesday approved its largest interest rate hike since 1994, boosting the target federal funds rate by 75 basis points to a range between 1.5 percent and 1.75 percent, shares in Asia declined. According to projections by Fed officials, the federal funds rate is expected to reach 3.4% by the end of the year.
At first, investors cheered the widely expected action, but as the trading day went on, growing worries cut into gains.
The Fed projected that the U.S. economy would grow at a below-trend rate of 1.7% in 2024, and officials anticipate cutting interest rates in that year.
Rob Carnell, head of research and chief economist for Asia-Pacific at ING, stated, “I constantly remind myself and others that they are lousy at forecasting and have no idea where the economy is headed.”
“Therefore, we should take no solace in these projections that GDP growth will be 1.7% this year and 1.7% next year… since their economy has been accelerating rapidly until very recently.“
The U.S. inflation rate rose more than expected in May, according to data released on Friday. A study from the University of Michigan found that consumers’ inflation expectations for the next five years have risen to their highest level since June 2008.
Fed Chair Jerome Powell said that the poll was “very arresting” at a news conference after the Fed’s last two-day policy meeting.
“(Inflation expectations) are beginning to appear excessive. I believe this is one of the reasons Powell wanted to do a 75… I believe they will also travel in July “said Commonwealth Bank of Australia’s head of foreign economics, Joseph Capurso (OTC: CMWAY).
“They need to reduce inflation.” They are so far behind the times that it’s unfunny. “
The MSCI Asia-Pacific ex-Japan index fell 0.46 percent in afternoon trading, wiping out earlier gains.Australian stocks declined 0.20 percent, while Chinese blue chips dropped 0.62 percent. Hong Kong’s Hang Seng lost 1.31 percent .
The Tokyo Nikkei index lost up to 2.38 percent of its previous gains before closing 0.40 percent higher.
ROOM FOR EXPANSION
In the Asian session, the dollar regained its footing after falling from a 20-year high following the Fed meeting.
“It appeared to be a classic instance of ‘buy the rumour, sell the fact,'” said Matt Simpson, a senior market analyst at CityIndex. “However, given the direction of Fed rate hikes, we highly doubt the U.S. dollar has reached its peak.”
The global dollar index, which measures the greenback against a basket of six peers, was recently up 0.27 percent at 105.08, while the dollar rose to 134.34 yen.
The value of the euro decreased 0.15 %, to $1.0427.
The yield on the 10-year U.S. Treasury note fell to 3.3068 percent on Thursday, down from 3.3950 percent at Wednesday’s close. This decline reflects an increase in risk aversion.
The yield on two-year bonds decreased to 3.2525 percent from 3.2790 percent at Wednesday’s close.
Oil prices recovered from a severe decline in commodity markets as investors focused on restricted supply. Brent crude rose 0.27 percent to $118.83 per barrel, while US crude rose 0.49 percent to $115.88.
Gold fell slightly as the dollar strengthened. Gold was recently quoted at $1,831.26 per ounce, a 0.12 percent decrease on the day. [GOL/]
