Asian markets rose Thursday as traders
cheered a sharp Federal Reserve interest rate hike that signalled it is
intent on driving inflation down from four-decade highs, while its boss
Jerome Powell said such big moves would not be commonplace.

Regional traders tracked a surge on Wall Street after the central bank move,
with hopes that the surge in prices can be brought under control, though
analysts warned uncertainty continued to rule owing to the perfect storm of
crises including the Ukraine war and China’s slowdown.

The 0.75 percentage point increase — the biggest in nearly 28 years — had
been widely expected by investors after data Friday showed inflation at its
highest since 1981, driven mostly by energy and food costs.

Powell said it was “essential” to lower inflation, and policymakers “have
both the tools we need and the resolve it will take to restore price
stability on behalf of American families”.

He stressed that the goal is to achieve that without derailing the US economy
but acknowledged there was always a risk of going too far.

In his post-meeting news conference, he told reporters the move was “an
unusually large one” but he did not expect “moves of this size to be common”.

However, “from the perspective of today, either a 50-basis-point or a 75-
basis-point increase seems most likely at our next meeting”.

While the lift was bigger than the 50 basis points flagged before Friday’s
figures, it was welcomed as a sign the Fed was on the case and helped push
down Treasury yields — a key guide to future rate expectations.

The 75 basis points hike “is a solid showing that will, all else being equal,
serve to improve Fed credibility and leave monetary policy slightly less
behind the inflationary curve”, said BMO Capital Markets strategists Benjamin
Jeffery and Ian Lyngen.

“The response in risk assets will ultimately define the extent to which the
Fed will be able to normalise monetary policy.”

After the strong performance on New York’s three main indexes, Asia largely
followed suit on hopes that a sharp burst of rate increases early will allow
the bank to begin cutting sooner.

Tokyo, Sydney, Shanghai, Seoul, Singapore, Wellington, Taipei, Manila and
Jakarta all rallied.

However, Hong Kong dipped after a big gain Wednesday, while investors there
were also contemplating a sharp rate hike in the city owing to its monetary
policy link to the United States.

“Powell must be pretty pleased with his press conference and the market
reaction as he delivered what I would interpret as a ‘dovish’ 75 basis point
hike. Equities are up, rate expectations are slightly down and the dollar is
a bit softer,” said SPI Asset Management’s Stephen Innes.

“Still, the Fed now needs the data to play along for the ride and inflation
to not surprise on the upside again. If it does, 75 basis points for July and
September will be quickly repriced.”

But he added that “the much taller order for stocks to return to any
semblance of bullish form would likely require an improbable upbeat mix of a
seamless China growth recovery, a convincing deceleration of US inflation,
and much softer oil prices”.

Other analysts were also wary about the outlook, with some concerned that the
Fed measures could tip the world’s top economy into recession.

“The volatility in bond markets is definitely not over,” Jasmin Argyrou, of
Credit Suisse Private Bank, told Bloomberg Television. “The likelihood is
that policy rates in the US may need to go to a more restrictive stance than
even the market is pricing in.”

Oil prices edged up a day after taking a hit from demand worries caused by
new Covid containment measures in China and data showing a surge in US
production.

The black gold was helped by a warning from the International Energy Agency
that global supplies — hammered by the Ukraine conflict — will struggle to
meet demand next year.

The euro remained under pressure, having enjoyed a selling respite Wednesday
after the European Central Bank said at an emergency meeting that it would
act to ease stress on sovereign debt markets and design a new instrument to
ward off a fresh crisis in the eurozone.

Borrowing costs in some eurozone countries are rising faster than in others
as the ECB tightens its monetary policy, but officials said they would
prevent such “fragmentation” that occurred during the region’s debt crisis a
decade ago.

– Key figures at around 0250 GMT –

Tokyo – Nikkei 225: UP 1.4 percent at 26,694.05 (break)

Hong Kong – Hang Seng Index: DOWN 0.1 percent at 21,291.07

Shanghai – Composite: UP 0.2 percent at 3,311.30

Dollar/yen: UP at 134.41 yen from 133.69 yen late Wednesday

Euro/dollar: DOWN at $1.0438 from $1.0457

Pound/dollar: DOWN at $1.2153 from $1.2181

Euro/pound: UP at 85.88 pence from 85.80 pence

West Texas Intermediate: UP 1.0 percent at $116.47 per barrel

Brent North Sea crude: UP 0.8 percent at $119.47 per barrel

New York – Dow: UP 1.0 percent at 30,668.53 (close)

London – FTSE 100: UP 1.2 percent at 7,273.41 (close)