Dollar down but stocks up in Asia on Fed hopes, focus on Trump-Xi

The dollar extended its losses in Asia after dovish comments from Federal Reserve head Jerome Powell. (Photo: AFP/Joe Raedle)

US markets were sent soaring on Wednesday (Nov 28) after Fed chief Jerome Powell said borrowing costs were still historically low but only "just below" the neutral level, a rate that neither stimulates nor restrains the economy.

While the central bank is widely expected to lift rates, his comment was a far cry from his characterisation last month of them being "a long way from neutral".

The fear of higher US interest rates - fuelled by a surging economy - has been a key driver of a global equity sell-off over the past few months, while the dollar has soared as traders put cash into the US looking for better, safer returns.

Observers said the remarks provided some much-needed cheer after months of negativity and ahead of the festive period.

"If you were looking for a trigger for a December rally in equities, we got it ... from the Federal Reserve," said Neil Wilson, chief market analyst at Markets.com.

"Powell's statement on the neutral rate was taken as a dovish assertion by markets and in many ways you could say the Fed chair just turned Santa for equity investors."

The dollar was down against its major peers as well as high-yielding and emerging market currencies, which have suffered a painful 2018. The pound even managed to strengthen despite warnings about the dire consequences of a no-deal Brexit from the Bank of England.

Among the big winners, the South African rand and Mexican peso each climbed around 1.5 per cent, while Indonesia's rupiah, the Australian dollar and Indian rupee all jumped more than one per cent.

"We have turned more positive on Asian currencies following encouraging signs that both the US and China were willing to talk at the upcoming G20 summit," Delphine Arrighi, an emerging market fund manager at Merian Global Investors in London, told Bloomberg News.

NO 'MEANINGFUL REFORM' OFFER

Most Asian equities tracked a rally in New York, where the Dow and S&P 500 surged more than two per cent while the tech-rich Nasdaq piled on three per cent.

Tokyo was 0.4 per cent higher, Sydney added 0.6 per cent, Singapore put on 0.5 per cent and Seoul was up 0.3 per cent. Wellington, Manila, Mumbai and Jakarta also registered strong gains.

However, profit-taking dragged Hong Kong down 0.9 per cent in the afternoon while Shanghai sank 1.3 per cent.

In early trade London rose 0.5 per cent, Paris jumped one per cent and Frankfurt was 0.7 per cent up.

Powell is "taking away the concern about aggressive interest-rate increases, which resolves one of the issues that hung over the markets during the last couple of months", Bob Phillips, at Spectrum Management Group, said.

"We still have the trade war issue with China and we'll see how that works out this week. If that comes out positive, we'll have a decent rally at the end of the year."

The meeting between the leaders of the world's top two economies is being watched with trepidation following a series of mixed signals from Washington.

In the latest development ahead of Saturday's talks at the G20 in Buenos Aires, US Trade Representative Robert Lighthizer said Beijing had failed to offer "meaningful reform" on its trade policies that he says hurts US jobs.

Taking aim at "China's aggressive, state-directed industrial policies", Lighthizer also threatened tariffs on Chinese autos.

His comments come a day after top White House advisor Larry Kudlow told journalists Trump "said there's a good possibility we can make a deal" and two days after the president warned of more levies if he and Xi do not reach an agreement.

Oil prices edged up but remain under pressure around 13-month lows after Wednesday's plunge of about 1.5 per cent, which was fuelled by a tenth straight weekly increase in US stockpiles, adding to fears of a supply overhang.

- Key figures around 0820 GMT -

Tokyo - Nikkei 225: UP 0.4 per cent at 22,262.60 (close)

Hong Kong - Hang Seng: DOWN 0.9 per cent at 26,451.03 (close)

Shanghai - Composite: DOWN 1.3 per cent at 2,567.44 (close)

London - FTSE 100: UP 0.5 per cent at 7,041.81

Pound/dollar: UP at US$1.2833 from US$1.2824 at 2140 GMT

Euro/pound: UP at 88.78 pence from 88.61 pence

Euro/dollar: UP at US$1.1387 from US$1.1369

Dollar/yen: DOWN at ¥113.25 from 113.65

Oil - West Texas Intermediate: UP 32 cents at US$50.61

Oil - Brent Crude: UP 21 cents at US$58.97 per barrel

New York - Dow Jones: UP 2.5 per cent at 25,366.43 (close)