Asian markets rise as dollar falls on Fed rate hopes

HONG KONG (AFP): Asian markets mostly rose on Thursday and the dollar retreated, brushing off a Wall Street retreat on hopes the Federal Reserve’s latest interest rate hike would be one of its last.

The gains came even as bank chief Jerome Powell dealt a blow to hopes it could cut borrowing costs later in the year to soothe banking sector fears.

Recent turmoil caused by the collapse of two US lenders and the takeover of Credit Suisse had fanned speculation central banks would pause their inflation-fighting monetary tightening campaign.

But on Wednesday, officials announced a ninth straight increase in the cost of borrowing as they put their emphasis on containing prices, though the 25-basis-point rise was half of what was expected at the start of the month.

Powell also told journalists that “rate cuts are not in our base case” and warned that there needed to be more supervision and regulation of banks to prevent another crisis.

Speculation had been swirling that officials would announce a cut as the collapse of Silicon Valley Bank and Signature Bank has been blamed on the impact of more than a year of rate hikes.

Analysts said the Fed had to walk a thin line as announcing a pause could have fuelled worries there was more to the banking sector’s woes than met the eye.
Powell added that the crisis in the banking sector was likely to bring “tighter credit conditions for households and businesses”.

His comments came as Treasury Secretary Janet Yellen told lawmakers that authorities were not looking at a blanket increase in deposit insurance for banks.
“Balancing the Fed’s desire to keep its pressure on inflation, and the reality of tightening credit conditions and bank lending appetite, we think the Fed could still deliver one more 25 basis point hike in May,” said Tai Hui, of JP Morgan Asset Management.

“The Fed’s policy outlook is not only going to be ‘data dependent’ on inflation and jobs, but increasingly concerned about the potential stress in the banking sector and repercussions on the broader economy.”

After a weak start, Asian markets were mixed, with support coming from a weaker dollar as traders bet that the Fed is coming towards the end of its tightening cycle.
Powell “emphasised that recent turmoil will likely tighten credit conditions and limit Fed hikes; hence the US dollar is weakening hard”, said SPI Asset Management’s Stephen Innes.

Hong Kong led gains, adding more than one percent thanks to a rally in tech firms, while Shanghai, Seoul, Taipei, Mumbai, Bangkok and Wellington were also up.However, Tokyo, Sydney, Singapore and Manila slipped.

John Bromhead, of Australia & New Zealand Banking Group, was upbeat about the outlook.

“I suspect now the major risk event is out of the way, risk-tone can improve through the day,” he said.

Oil prices fell back after a recent rise as traders fret over the effect on demand from more rate hikes and a possible slowdown in economic activity.

“Clearly, macro (data) will remain the key driver for price direction in the short term,” said ING Groep NV’s Warren Patterson.

“Comments from Yellen related to a blanket deposit insurance appear to have put some renewed pressure on risk assets, including oil.”