Asian Stock Markets Rise After US Federal Reserve Sees Inflation Improving

Beijing, February 2: Asian stock markets gained on Thursday after the Federal Reserve said the US economy is moving toward lower inflation but more interest rate hikes are planned. Shanghai, Tokyo, Hong Kong and Sydney advanced. Oil prices rose.

Wall Street's benchmark S&P 500 index closed 1 per cent higher on Wednesday after the Fed raised its key lending rate by 0.25 percentage points, a smaller margin than previous increases. US Federal Reserve Signals Aggressive Rate Hike: How Will It Impact Indian Economy?.

Chair Jerome Powell said the “disinflationary process has started” but “ongoing increases” in rates will be needed. Traders hope lower inflation following repeated rate hikes by global central banks will encourage them to scale down plans for more increases. Some expect a US cut before 2024, though Powell said he anticipates no reductions this year.

Markets put a “dovish interpretation” on Powell's comments despite his warning that it was too early to declare victory, said Venkateswaran Lavanya of Mizuho Bank in a report.

The gap between market pricing and Fed plans "appears to have widened,” Lavanya wrote. “This leaves room for a rude shock down the road.” The Shanghai Composite Index gained less than 0.1 per cent to 3,287.29 and the Nikkei 225 in Tokyo added 0.2 per cent to 27,391.85. The Hang Seng in Hong Kong advanced 0.3 per cent to 22,128.78. US Federal Reserve Raises Interest Rates by 0.5%, Sharpest Hike in 22 Years.

The Kospi in Seoul was 0.6 per cent higher at 2,463.20 and Sydney's S&P-ASX 200 rose 0.2 per cent to 7,513.80. New Zealand and Jakarta advanced while Singapore and Kuala Lumpur declined.

Following Powell's news conference, the S&P recovered from an early loss to rise to 4,119.21, its highest close since August. That appeared to encourage investors who worry the Fed and European central banks might be willing to push the global economy into recession to cool inflation that is near multi-decade highs.

“We can now say, I think for the first time, that the disinflationary process has started," Powell said. He said his “base case” is that the Fed's inflation target of 2 per cent can be achieved “without a really significant downturn or really big increase in unemployment.”

The Dow Jones Industrial Average gained less than 0.1 per cent to 34,092.96. The Nasdaq composite jumped 2 per cent to 11,816.32. Wednesday's announcement raised the Fed's overnight lending rate to a 16-year high of 4.5 per cent to 4.75 per cent, up from close to zero early last year.

Data on Wednesday gave a mixed picture of the US job market, a factor in inflation expectations. Hiring has stayed resilient despite repeated rate hikes. While that helps workers, it adds to worries that wage gains could add to upward pressure on prices.

Private payrolls rose by 106,000 in January, according to ADP, a payroll processor. That was a smaller gain than the previous month and below forecasts. A separate US government report indicated more strength. It said the number of job openings increased to 11 million in December, better than expected.

In energy markets, benchmark US crude rose 66 cents to USD 77.07 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell USD 2.46 on Wednesday to USD 76.41. Brent crude, the price basis for international oil trading, added 61 cents to USD 83.45 per barrel in London. It lost USD 2.62 the previous session to USD 82.84 a barrel.

The dollar fell to 128.55 yen from Wednesday's 128.77 yen. The euro rose to USD 1.1018 from USD 1.0979.

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