Shares edge up after Fed hike, dollar firm on short-term yields
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SYDNEY, Sept 17 : Shares edged up in Asia on Thursday as investors bet the Federal Reserve is finally getting the jump on inflation, delivering its first rate hike in more than three years and calming a global bond selloff that had sent long-term yields soaring.
The U.S. dollar hit a seven-week high against its major peers, underpinned by a jump in short-term Treasury yields as markets ramped up wagers that the Fed may have to lift rates again, with a move by December fully priced in. That proved a headwind for commodities, with oil prices giving back ground.
The focus now shifts to the Bank of England, which is widely expected to leave interest rates steady later in the day, but all eyes will be on any hint about if high energy prices could force it to hike in November. The Bank of Japan, by contrast, is all but certain to lift interest rates on Friday.
European shares are set for a higher open, with pan-region stock futures up 0.5 per cent. Nasdaq futures gained 0.7 per cent and S&P 500 futures bounced 0.6 per cent, after small declines on Wall Street.
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MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 per cent while Japan's Nikkei also gained 0.3 per cent. Chinese blue-chips slipped 0.2 per cent and Hong Kong's Hang Seng fell 0.7 per cent.
As widely expected, the Fed raised interest rates by a quarter point overnight, but the unanimous decision tilted to the hawkish side. The dot plot projected one more rate hike this year but stopped short of signalling any moves next year.
Tai Hui, APAC chief market strategist at JPMorgan Asset Management, said investors would need to reassess the valuations for assets especially tech stocks if the Fed remained hawkish going into 2027.
"We think the chance of U.S. policy rates returning to above 5 per cent is still limited. Nonetheless, a catalyst to extend the equity bull market is looking unlikely in the foreseeable future," he added.
Futures imply there is a 53 per cent chance that the Fed could follow up with a second hike as soon as next month to rein in inflation. A total of three rate rises have been priced in for this tightening cycle.
The Treasury yield curve bear flattened, with short-term maturities taking a hit but long bonds heaving a sigh of relief. Two-year Treasury yields slipped 1 basis point to 4.7174 per cent, after spiking 6 basis points overnight to the highest since July 2024.
That helped boost the U.S. dollar to a seven-week high of 100.36 against its major peers, having surged 0.7 per cent overnight, the biggest daily gain in three months.
The yield on benchmark U.S. 10-year notes was back at 5 per cent, having dipped to as low as 4.9385 per cent overnight, while 30-year bond yields were flat at 5.3522 per cent, off from a 19-year high of 5.401 per cent.
"Chair Warsh will be pleased that the breakout of the 10-year yield shows a moderate fall in inflation expectations, which telegraphs a nod of approval from the market to the hike as an inflation containment one," said Padhraic Garvey, regional head of research, Americas, at ING.
"It was still an eloquent performance. But it won't rescue the back end of the curve. We identify 5.25 per cent as a next target for the U.S. 10-year yield."
Commodity markets took a hit on the stronger dollar. Brent crude futures slipped 0.2 per cent to $105.67 a barrel after falling 2.7 per cent overnight as Saudi Arabia was reportedly offering crude cargoes through Oman, easing some concerns about Middle East supply disruption.[O/R]
Gold, however, showed some resilience, rising 0.7 per cent to $4,293 an ounce, offsetting a similar fall overnight.
(Editing by Stephen Coates)
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