Caution continued in global stock markets following the Federal Reserve’s overnight announcements on the unwinding of its balance sheet and its intent to stick to its rate-increase schedule.
U.S. stocks finished Wednesday near their prerelease levels, and most Asian markets on Thursday ultimately moved little from day-before finishes.
There was some indirect central-bank impact. That was most apparent in Australia, where the S&P/ASX 200 slid 1.2%, setting the stage for its worst day in two months, as the utilities subindex fell 2.5% to 2017 lows. Utilities are a favorite for investors seeking higher yields, so rising interest rates lessen their allure–and months of strong economic data have raised the prospect of Australia’s central bank starting its own rate-increase cycle sooner rather than later.
Also weighing on Australian stocks, but helping those in Japan, was a jump in the U.S. dollar following the Fed’s reiterating its plan for a third interest-rate increase this year and three more in 2018. The dollar’s gains helped push metals prices down some 1%.
“The market wasn’t expecting a rate hike in December,” said Shane Chanel, an equities adviser at ASR Wealth Advisers.
Many investors “may have expected a more-dovish outcome” from the Fed, “especially on the interest-rate projections,” added Steven Friedman, a senior economist at BNP Paribas Asset Management.
The Nikkei was recently up 0.5%, surrendering some of its morning gains after the Bank of Japan emerged from its own meeting and issued a statement in line with expectations. The yen rebounded a bit after the release, to Yen112.40/dollar from Yen112.60 earlier Thursday.
Insurers and exporters were strong again. Their shares often rise when the yen weakens and bond yields go up–as they have since the start of last week.
Apart from Taiwan, where the stock benchmark rose 0.6% in the wake of HTC’s $1.1 billion smartphone deal with Google, indexes in Asia were little changed, with slight gains in Hong Kong and India, small drops in South Korea and Shenzhen. S&P 500 futures are essentially flat.
Hong Kong bank stocks’ gains were muted, as the prospect of additional interest-rate increases was priced in during their recent strong rally, said UOB Group stock strategist Ivan Pong.
Despite leaving rates unchanged Wednesday, the U.S. central bank sounded optimistic about the economy. And there is little apparent concern about the Fed’s plan to start shrinking its $4.5 trillion balance sheet. It won’t dent risk appetite, said Alessio de Longis, head of macro strategy for international funds at OppenheimerFunds.
He also doesn’t foresee inflationary pressures that could prompt global central banks to step up hawkish rhetoric and the pace of tightening.
Oil futures in Asia were little changed after jumping nearly 2% overnight to hit fresh multimonth highs. Japan Petroleum rose 3% and Australia’s Santos gained 2.2%.
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