By Tom Westbrook
SINGAPORE (Reuters) – The dollar rebounded, long-term government bond yields rose and Asian shares broadly rose after the U.S. Federal Reserve began its easing cycle with a big rate cut, but this was tempered by a balanced outlook as it tries to keep the economy afloat.
The S&P 500 hit a record high overnight before closing slightly lower. Futures rose 0.6% in the Asia day and Nasdaq futures rose 0.9%. Japan’s Nikkei jumped 2% and Australian shares hit a record high. [.T][.AX]
The Fed cut the window for its benchmark policy rate by 50 basis points to 4.75-5%, where markets were leaning ahead of the decision. The dollar immediately hit a two-and-a-half-year low against the pound, but fell sharply thereafter.[FRX/]
On Thursday morning, the price rose nearly 1% to 143.55 yen, well below the euro’s lows of 1.1081 dollars.
Ten-year Treasury yields rose nearly eight basis points from a day earlier to 3.719%, while gold surged to a record high of just under $2,600 an ounce before falling back to a steady level of $2,559. [US/][GOL/]
The Fed’s rate cut is expected to boost spending and the US economy.
“The key was never going to be 25 or 50, it’s all about the way forward and I think they’ve outlined a vision where the economy is still doing quite well,” BNZ strategist Jason Wong said in Wellington. “This wasn’t a panicky 50 (bp) cut.”
Policymakers have lowered their forecasts for median interest rates from their July forecast, but Fed Chairman Jerome Powell stressed that next steps will be data-driven.
“I don’t think anyone should look at this and say, oh, this is the new pace,” Powell told reporters after the outsized cut was announced.
“We are recalibrating the policy over time to a more neutral level. And we are moving at the pace that we consider appropriate, given the developments in the economy.”
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.4% in early trading, pressured by South Korean markets returning from holiday and heavy falls in the chip industry after a downbeat note from Morgan Stanley.
SK Hynix shares fell 9.6% and Samsung fell 2.6%. Hong Kong’s Hang Seng rose slightly, while the mainland benchmark CSI300 fell 0.4%. Oil prices fell, with benchmark Brent crude futures last down 0.3% at $73.42 a barrel. [O/R]
In the region, lower US interest rates theoretically provide room for emerging markets to cut their policy rates and thus support growth.
Bank Indonesia had already moved hours before the Fed, cutting 25 basis points on Wednesday. Chinese bond yields fell in early trading on Thursday on expectations of more easing from Beijing to support China’s increasingly sluggish economy.
The Bank of England meets later on Thursday and is expected to keep interest rates at 5%, especially after inflation data showed services sector inflation rose in August. The Bank of Japan sets policy on Friday and is expected to stick with it but schedule future hikes, possibly as early as October.
(Edited by Shri Navaratnam)
