Fri, Jul 29, 2022 page12

• Asia, Europe track post-Fed surge on Wall Street, although caution is urged

  • AFP, HONG KONG
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  Shares yesterday slipped in Europe after gains in most Asian markets following a surge on Wall Street fueled by hopes that the US Federal Reserve might slow its pace of inflation-fighting interest rate hikes.

  The Fed raised its main interest rate by 75 basis points as expected, and reiterated inflation control as its priority.

  However, it dropped guidance on the size of its next rate hike, and said that “at some point” it would be appropriate to slow down.

  

  A person watches display screens on the floor of the New York Stock Exchange on Wednesday.

  Photo: AFP

  Analysts cautioned that the initial joy, which sent New York’s three main indices soaring, could be short-lived as the global economy continues to face several headwinds, and inflation would likely not come down quickly.

  The TAIEX closed down 29.69 points, or 0.2 percent, at 14,891.90, but Shanghai, Tokyo, Sydney, Seoul, Singapore, Mumbai, Manila, Jakarta and Wellington were in positive territory.

  Hong Kong slipped 0.2 percent to 20,622.68, as its de facto central bank followed the Fed in lifting rates owing to its currency peg.

  European shares came off session highs after a slew of downbeat corporate earnings.

  There is growing concern that the sharp rise in rates is bearing down on the world’s top economy and could send it into a recession.

  US Federal Reserve Chairman Jerome Powell said he did not consider that to be the case, as “there are too many areas of the economy that are performing too well,” adding, however, that growth was slowing.

  Central bank officials would not provide any guidance on their next move, instead taking each decision on a meeting-to-meeting basis, Powell said.

  While another “unusually large increase could be appropriate” in September and officials “wouldn’t hesitate” to lift by 1 percentage point, markets took heart from the suggestion that the bank was ready to take its foot off the gas toward the end of the year, he said.

  The prospect of a slower pace of rate hikes weighed on the US dollar against most other currencies, and yesterday it hit its lowest level against the yen since July 6.

  However, there was a warning that the positive mood might not last.

  “This market move is the victory of hope over experience,” BlackRock Inc strategist Jeffrey Rosenberg said. “I’d be a little bit cautious.”

  Citigroup Inc analysts Andrew Hollenhorst and Veronica Clark said in a statement that traders appeared to be misjudging Powell’s remarks.

  “We read Chair Powell’s press conference as more hawkish than the market’s interpretation,” they said, adding that inflation readings excluding food and energy will “push the Fed to hike more aggressively than they or markets anticipate.”

  Second-quarter growth data in the US were to be released yesterday. After a 1.6 percent contraction in the previous three months, another negative reading could put the economy into a technical recession.

  Yesterday’s phone call between US President Joe Biden and Chinese President Xi Jinping (習近平) was also high on the agenda of what investors were watching, as the world’s superpowers tried to navigate a period of rising tensions. A trade dispute between the US and China was one of the main areas of focus.

  Additional reporting by AP and Reuters
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