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Dollar down, stocks swing as Fed sticks at three

Mar 22 2018 07:15
Adam Haigh, Bloomberg

Sydney - The dollar extended losses, Treasuries rose and Asian stocks fluctuated as traders assessed the implications of higher borrowing costs in the US and China alongside global trade tensions, with President Donald Trump set to announce tariffs against Asia’s largest economy on Thursday.

Japanese and Korean stocks pared early gains while Hong Kong and Chinese shares retreated after China’s central bank also lifted market interest rates. The greenback sank as the Fed did not suggest that it was leaning toward four rate hikes this year, as some had expected.

The yen was the strongest of the Group-of-10 currencies and the ringgit led gains in Asia’s emerging-market currencies.

The US 10-year yield retreated while yields on two-year US Treasuries, which are more sensitive to changes in Fed policy than longer debt, extended its drop.

Federal Reserve officials, meeting for the first time under Chairman Jerome Powell, raised the benchmark lending rate a quarter point and forecast a steeper path of hikes in 2019 and 2020, citing an improving economic outlook.

Investor focus now switches to trade, with Trump set to announce about $50 billion of tariffs against China over intellectual-property violations on Thursday, according a person familiar with the matter.

"Generally speaking the meeting was slightly dovish compared to what most market participants were expecting," said Charlie Ripley, senior investment strategist for Allianz Investment Management.

"A rate hike was certain, but lack of upward movement in the 2018 'dots' left investors who were looking for a hawkish outcome unsatisfied."
Elsewhere, oil held gains after inventories in the US dropped for the first time in a month, catching traders off guard. The Australian dollar slipped after the unemployment rate climbed.

The kiwi dollar edged higher after the New Zealand central bank held interest rates at a record low and indicated it doesn’t expect to raise them anytime soon.

Here are some key events on the schedule for the remainder of this week:

The Bank of England is expected to keep interest rates and its asset-purchase program unchanged on Thursday. Attention will be on language and the odds for a May hike, now seen as increasingly likely. Philippines monetary policy decision is due on Thursday.

Euro area flash PMIs come on Thursday as well as Germany’s IFO gauge of business confidence.

And these are the main moves in markets:

Stocks

The MSCI Asia Pacific Index jumped 0.2% as of 1:38 pm Tokyo time. Topix index climbed 0.3%. Hong Kong’s Hang Seng Index sank 0.6%. Kospi index jumped 0.5%. Australia’s S&P/ASX 200 Index fell 0.3%. Futures on the S&P 500 Index rose less than 0.05%.

Currencies

The Bloomberg Dollar Spot Index fell less than 0.05%. The Japanese yen rose 0.3% to 105.76 per dollar. The euro rose 0.2% to $1.2363. The Australian dollar fell 0.3% to 77.38 US cents.

Bonds

The yield on 10-year Treasuries declined two basis points to 2.86%. Japan’s 10-year yield fell one basis point to 0.038%. Australia’s 10-year yield fell two basis points to 2.68%.

Commodities

West Texas Intermediate crude rose 0.1% to $65.22 a barrel. Gold fell 0.1% to $1 330.29 an ounce. LME copper rose 0.5% to $6 828.00 per metric tonne.

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