SINGAPORE: Gold prices and benchmarks in Tokyo and Taipei followed the S&P 500 to record highs on Thursday after the U.S. Federal Reserve indicated it would stick with its plans to cut Federal Reserve.
The U.S. dollar nudged lower and traders slightly increased their expectations for a U.S. rate cut in June. S&P 500 futures rose 0.4%, gliding into uncharted territory, after the cash index logged a record closing high on Wednesday.
EuroSTOXX 50 futures rose 1.2%. FTSE futures rose 0.9%. Central bank meetings in Switzerland, Norway, Britain and Turkey are scheduled later in the session.
The Fed left U.S. rates on hold between 5.25% and 5.5% on Wednesday, as expected, and nudged up inflation forecasts. But policymakers’ median projection for three 25 basis point rate cuts this year was unchanged from December.
“The projections suggest that they expect to ease monetary policy even if (year-on-year) core inflation is running higher,” said Standard Chartered strategist Steve Englander. “We and many in the market had expected a shift to two cuts in the projections because of higher recent inflation outcomes. Sticking to three cuts and implicitly raising the inflation threshold shows an eagerness to ease, in our view.”
Fed Chair Jerome Powell told reporters sticky inflation reports show price pressures but “haven’t really changed the overall story, which is that of inflation moving down gradually”.
The Nikkei and Taiwan weighted index each climbed 2% to record levels. MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.6%.
U.S. Treasuries rallied, before steadying in Asia with two-year yields at 4.60% and 10-year yields at 4.27%. Fed members’ long-run rate projections ticked higher to 2.6% from 2.5%, with seven policymakers projecting long-run rates over 3% – up from four in December.
“This higher long term view suggests the U.S. economy can continue to operate with a higher level of interest rates than in the past,” said J.P. Morgan Asset Management strategist Kerry Craig.
“A moderately stronger U.S. economy and falling rates should be a positive for Asian markets as any additional U.S. demand will support the manufacturing cycle.”
CARRY ON
In foreign exchange markets, the prospect of cuts weighed on the dollar, which together with renewed warnings of possible official intervention from Japan lifted the yen from near multi-decade lows to 150.45 per dollar.
The euro traded to a week high of $1.0939 in Asia. The Australian dollar also jumped to a one-week high after a startlingly strong jobs report quashed talk of early policy easing.
With foreign exchange volatility scraping around two-year lows, however, traders say the dollar can still draw support from interest rates that are higher than peers, at least for now.
“One of the bigger carry stories is probably the dollar itself,” said Patrick Hu, a G10 currency trader at Citi in Singapore, who focuses on yen.
“The lack of geopolitical headlines or big news is leading to good carry trades that have been popular since the start of this year, in the absence of a bigger trading theme out there.”
Brent crude futures, up 5.6% in little more than a week on supply concerns were up 0.6% at $86.47 a barrel.
Iron ore futures – down some 20% this year in Singapore on worries about China’s growth and demand – are staging a bit of a rebound and analysts at ANZ said the market might be finding a bottom. – Reuters