Indications that the U.S. Fed is slowing down, and China is boosting its economy
The dollar failed to recover losses as Asian equities outperformed Wall Street on Thursday, encouraged by signs the US Federal Reserve may pause the rate of interest rate increases and news of new Chinese economic stimulus.
Early trading saw a 0.8% increase in MSCI’s largest index of Asia-Pacific equities outside of Japan, driven by gains of 0.6% in South Korean shares, 0.5% in China’s blue-chips, and 0.9% in Hong Kong’s Hang Seng index, and the Nikkei in Japan rose 1.3%.
Following Wednesday’s small advances in US stocks, the S&P 500 futures increased by 0.2%, while the Nasdaq futures increased by 0.3%.
In response to the impending global recession, the Bank of Korea reduced its rate of tightening on Thursday to a more manageable 25 basis points, joining other central banks in this move.
A “substantial majority” of Fed policymakers concurred that it would “likely soon be appropriate” to pause the rate of interest rate increases, according to the minutes of the most recent meeting of the U.S. Federal Reserve.
In light of the extremely tight labor market and intolerably high inflation, it is evident from the minutes that FOMC members are committed to continue raising the policy rate, according to analysts at Barclays.
The minutes also show that members’ opinions about the peak rate are beginning to split and that they are unsure of it.
The target U.S. federal funds rate is expected to reach its peak of over 5% by next May, according to the majority of investors, while the futures market predicts a 76% chance of an increase of 50 basis points to 4.25%-4.5% at the December meeting.
According to U.S. economic data released on Wednesday, unemployment claims rose more than anticipated last week, and corporate activity shrank for a fifth consecutive month in November.
According to data released on Thursday, manufacturing activity in Japan shrank at its sharpest rate in two years in November.
As the economic cost of lockdowns and mobility limitations mounted, COVID cases in China grew rapidly.
China’s cabinet promised more stimulus measures on Wednesday, hinting at the potential of a reduction in the country’s banks’ reserve requirement ratio (RRR).
The index for the US dollar against a basket of currencies was at 105.89 on Thursday, failing to recover overnight losses of 1%.
From September, oil prices are expected to test a key support level that, if broken, may send prices plunging to levels last seen in late 2021, adding to the evidence that inflation has probably started to decline.
After falling more than 3% on Wednesday, U.S. crude oil futures declined 0.2% to $77.79 a barrel as the Group of Seven (G7) countries discussed setting a price restriction on Russian oil above the current market price and, Futures for Brent crude decreased 0.15% to $85.26.
After the Fed minutes, long-term U.S. Treasuries increased in value overnight. A curve inversion on the scale not seen since the dot.com bust of 2000 occurred when the yields on 10-year notes plunged to a large 79-basis-point gap to two-year yields. On the surface, this is an indication that investors should anticipate a significant economic slump in the months to come.
Courtesy to REUTERS