Most Asian markets up with Fed rates seen low for longer

August 28, 2020 | 11:08
Expectations US interest rates will stay ultra low for as long as needed to support the world's top economy helped lift Asian equities on Friday, though fresh virus spikes in Europe tempered gains.
most asian markets up with fed rates seen low for longer
Most Asian markets up with Fed rates seen low for longer, photo: Shutterstock

In a much-anticipated speech, Federal Reserve boss Jerome Powell said it would be in no rush to reel in inflation, even if it overshoots the central bank's two percent target, instead opting for an average that took into account periods of weak price rises.

Powell said policymakers would stick with the new framework "for some time", indicating that the era of cheap borrowing is here to stay for the foreseeable future.

He also said the Fed would now work towards a goal of "maximum employment" as its policy of achieving low unemployment had failed to spur inflation, adding that the bank was prepared to use "our full range of tools to support the economy".

While the move had been widely expected, the news was welcomed in New York with the Dow ending within a whisker of wiping out its 2020 losses, while the S&P 500 notched a fifth straight record.

The speech overshadowed news that US jobless claims came in higher than expected last week.

"In the absence of fresh positive economic news recently, this statement should cheer investor sentiment," said JP Morgan Asset Management analyst Tai Hui.

"Monetary policy is likely to stay accommodative for even longer. Not only will the Fed need to provide sufficient support to help the economy through the pandemic fallout, but also policy rates should be kept low beyond that to generate sufficient inflationary pressure.

"The search for income for Asian investors will continue -- this should be supportive of risk assets such as equities, corporate bonds and emerging-market fixed-income."

- Europe takes virus action -

However, Stephen Innes of AxiCorp said there was some disappointment.

"First, the average inflation-targeting framework remains vague and unspecific. Second, Powell gave no hints on how the statement change would translate into concrete policy action," he said in a note. "The question now is what the September 16 (policy board) meeting will bring."

Hong Kong rose 0.6 percent and Tokyo added 0.4 percent while Singapore and Seoul each jumped more than one percent. Shanghai edged up 0.1 percent and Jakarta was marginally up. However, Sydney slipped 0.9 percent, while Taipei and Manila were lower.

Wellington dipped as it reopened after being hit early on by a cyberattack for a fourth straight day. Officials at the New Zealand Exchange said they were investigating after Thursday's trading was called off soon after opening.

While the cash tap that has helped fuel a surge in global equities will remain turned on, investors continue to be rattled by news of further coronavirus infection spikes around the world, particularly in Europe.

France, Germany and Spain have imposed fresh control measures as coronavirus cases surge following the easing of lockdowns.

Oil markets extended losses after Hurricane Laura, which battered the Mexican Gulf and shut down several rigs, weakened as it moved inland.

- Key figures around 0300 GMT -

Tokyo - Nikkei 225: UP 0.4 percent at 23,292.80 (break)

Hong Kong - Hang Seng: UP 0.6 percent at 25,434.64

Shanghai - Composite: UP 0.1 percent at 3,352.01

Euro/dollar: UP at $1.1829 from $1.1822 at 2100 GMT

Dollar/yen: UP at 106.78 yen from 106.55 yen

Pound/dollar: UP at $1.3220 from $1.3201

Euro/pound: DOWN at 89.48 pence from 89.55 pence

West Texas Intermediate: DOWN 0.2 percent at $42.94

Brent North Sea crude: DOWN 0.1 percent at $45.05 per barrel

New York - Dow: UP 0.6 percent at 28,492.27 points (close)

London - FTSE 100: DOWN 0.8 percent at 5,999.99 (close)


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