On Wednesday, Asian stock markets experienced mixed trading following remarks by Federal Reserve chief Jerome Powell, hinting at the possibility of higher interest rates to counter a rebound from recent Middle East-related selling pressure.
In New York, the S&P 500 and Nasdaq both saw declines, while the Dow managed to secure a slight gain.
Across Asia, markets showed a mixed performance with Tokyo, Hong Kong, Sydney, Seoul, and Bangkok reporting losses, whereas Shanghai, Singapore, Wellington, Taipei, Jakarta, and Manila saw gains.
London opened with minimal movement as data revealed that Britain’s annual inflation rate had dropped less than anticipated. Meanwhile, Paris and Frankfurt both saw increases.
Traders are anxiously monitoring the situation between Israel and Iran, following a missile and drone attack over the weekend. The absence of an immediate response has shifted focus towards the monetary policy plans of the US central bank.
Stronger-than-expected data on inflation and employment in the first quarter has compelled investors to scale back on their expectations for the number of interest rate cuts that the Fed might implement this year.
Powell affirmed that borrowing costs may need to remain higher for an extended period compared to previous expectations.
“The recent data have not instilled greater confidence in us and suggest that it will likely take more time than anticipated to regain that confidence,” he cautioned in Washington on Tuesday.
Citing the robust labor market and progress on inflation, Powell suggested allowing the existing restrictive policy more time to take effect and to be guided by evolving data and outlook.
Based on the Fed’s latest rate guidance “dot plot,” it was projected that rates would be reduced three times this year, with the first cut possibly in June.
Initially, traders had factored in up to six cuts at the beginning of the year. However, the current expectation is for only one or two cuts at best, likely starting in July or September. Some are even speculating that the next move could be a rate hike if inflation does not retreat to the Fed’s two percent target.
Similar sentiments to Powell’s have been expressed by several Fed officials, advocating for cautious approaches towards normalizing rates.
Richmond Fed President Thomas Barkin mentioned on Tuesday that recent indicators did not support the notion of a soft landing for the economy, while Fed Vice Chair Philip Jefferson foresees a decrease in inflation but expects rates to stay elevated due to pricing pressures.
Speaking about the Fed’s credibility, Stephen Innes of SPI Asset Management highlighted, “The hawkish tone from Powell didn’t come as much of a surprise, considering the persistent inflationary challenges, the robust state of the US economy, and the Fed’s commitment to data-driven decision-making.”
Despite Powell’s comments, the dollar’s recent surge has stalled, yet it remains strong against other currencies such as the yen, South Korean won, and Indian rupee.
South Korea disclosed that its finance minister met with his Japanese counterpart to address the depreciation of their currencies, agreeing to take necessary measures to counter extreme volatility.
Seoul issued a rare warning, stating that authorities were closely monitoring currency movements as the won briefly touched a crucial level of 1,400 per dollar for the first time in 17 months.
Regarding the developments in the Middle East, traders are staying vigilant after Israel’s military chief General Herzi Halevi warned of a response to Iran’s weekend attack, raising concerns about a possible wider conflict in the region.
Despite the ongoing crises in the Middle East, Ukraine, and OPEC’s output cuts, trading floors have remained relatively calm on Wednesday with oil prices slightly decreasing.
Reflecting on the situation, Han Zhong Liang of Standard Chartered stated, “Our base case is one where tensions remain contained (in the Middle East), avoiding a wider conflict that disrupts oil supply.”
Key Figures:
Tokyo – Nikkei 225: DOWN 1.3 percent at 37,961.80 (close)
Hong Kong – Hang Seng Index: DOWN 0.2 percent at 16,219.37
Shanghai – Composite: UP 2.1 percent at 3,071.38 (close)
London – FTSE 100: FLAT at 7,819.40
Dollar/yen: DOWN at 154.46 yen from 154.72 yen on Tuesday
Euro/dollar: UP at $1.0633 from $1.0622
Pound/dollar: UP at $1.2475 from $1.2426
Euro/pound: UP at 85.23 pence from 85.45 pence
West Texas Intermediate: DOWN 0.6 percent at $84.88 per barrel
Brent North Sea Crude: DOWN 0.4 percent at $89.62 per barrel
New York – Dow: UP 0.2 percent at 37,798.97 (close)
AFP