Asian shares gain after Fed assurance on rates lifts Wall Street

TOKYO

Thursday’s increase in Asian shares was due to the U.S. Federal Reserve raising its key interest rate by three quarters of a point. This signaled that there would be more rate increases to combat inflation.

Wall Street rallied Wednesday after the Fed’s hike, the biggest since 1994, as investors took heart from Chair Jerome Powell’s comments suggesting future rate increases may be more modest. It was also expected that the Fed would increase its rate by a larger amount than usual, which was no surprise given that it had been expected for weeks.

The Bank of Japan will hold a two-day policy meeting that begins Thursday. Given the downward pressures on yen due to U.S. rate increases and Japan’s super-low rates, the Japanese central bank is under immense pressure to act.

In anticipation of higher yields from dollar denominated holdings, investors have been buying dollars and selling yen. The declining yen has been a concern for Japanese politicians and the chief of the central bank, but there are no plans to make any major policy changes.

The U.S. dollar rose to 134.56 Japanese Yuen on Thursday morning from 133.82. It recently reached 135 yen, its highest level in 20-years. The euro cost US$1.0438, a drop of $1.0447 from its previous high of $1.0447.

Japan’s benchmark Nikkei225 rose 1.8% to 26,793.19. Australia’s S&P/ASX 200 gained 0.4% to 6,627.50. South Korea’s Kospi rose 1.2% to 2,476.61. Hong Kong’s Hang Seng lost 0.6% to 21,178.90. Meanwhile, the Shanghai Composite quickly lost its earlier gains to drop 0.1% to 3,301.89.

As wages fall and growth slows, there are growing concerns about the Japanese economy.

The Finance Ministry reported that Japan’s trade deficit was nearly 2.4 trillion Japanese yen ($17.9billion), its 10th consecutive month of 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, which is resource-poor, imports almost all of its energy.

On Wall Street, the S&P 500 climbed 1.5% to 3,789.99 after whipping through roller-coaster trading immediately following the Fed’s latest move.

After Powell’s hint of smaller rate increases later in the year, Treasury yields fell in the bond market. Yields shot up to their highest levels for more than a decade earlier this year, based on expectations of a more aggressive Fed.

The Fed is “not trying to induce a recession now, let’s be clear about that,” Powell said. He called Wednesday’s big increase “front-end loading.”

The two-year Treasury yield declined to 3.21%, from 3.45% late Tuesday. Powell was the most notable mover. said 0.75 percentage point rate hikes wouldn’t be common. The 10-year Treasury yield dropped to 3.34% from 3.488%.

“The bond market right now is driving the broader market and that will continue,” saidJay Hatfield is the CEO of Infrastructure Capital Advisors.

The Dow Jones Industrial Average saw gains and losses but ended up 1% higher at 30668.53. The Nasdaq composite rose 2.5% to 11,099.15.

The S&P 500 tumbled into a bear market earlier this week and Wednesday’s gain was its first in six days.

Some analysts warned that the rally may be short-lived because of the high level of inflation.

“Chair Powell painted as rosy a picture as could be painted, and to achieve that picture that he is laying out, that pathway, a lot has to go right,” saidYung Yu Ma, chief investment strategist at BMO Wealth Management. “It’s a challenging path, and he acknowledged that.”

As high inflation forced central banks to quickly remove support from markets during the pandemic, all types of investments, including bonds and bitcoin, have fallen this year.

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, which included high-growth technology stocks or cryptocurrencies.

The economy is holding up well in a hot job market, but there have been some signs of distress lately. In May, sales at U.S. retailers unexpectedly dropped from April.

Bitcoin prices continued to decline, falling as low at $20,087.90. This is almost 71% below its record low of $68,990.90 which was set late last Year. According to CoinDesk it was down nearly 1% to $21,770 in afternoon trades.

Powell said Wednesday the Fed is moving “expeditiously” to get rates closer to normal levels after last week’s stunning report that showed inflation at the consumer level unexpectedly accelerated last month. Wall Street had hoped that inflation might have peaked, but this report has scuttled those hopes.

Because Ukraine is a major oil producer, the war in Ukraine has pushed up oil prices. The closure of factories and disruptions in supply chains have 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, benchmark U.S. crude rose $1.19 to $1.16.50 a barrel in electronic trades on the New York Mercantile Exchange. It dropped $3.62 to $115.31 a bar on Wednesday. Brent crude, the international standard for oil, increased $1.01 to £119.52 a bar.

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Stan Choe, AP Business Writer, contributed.