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Fed rate hike boosts Asia Pacific markets but oil price continues to fall

Governments and central bankers across Asia Pacific have breathed a collective sigh of relief after stock markets rallied rather than recoiled at the US Federal Reserve’s decision to raise interest rates.

The region’s main stock markets saw impressive gains on the back of the first Fed rise since 2006, with the Nikkei index in Japan up 1.54% at 6am GMT and the Hang Seng in Hong Kong rising 0.56%, while the ASX/S&P 200 in Australia closed up 1.5%.

Futures trading suggested European stock markets would also open in the black on Thursday, following on from Wednesday’s gains.

South Korean vice-finance minister Joo Hyung-hwan said: “It is a relief that even despite the Fed rate hike, turbulence in global financial markets has not been large.”

But although the decision by the Fed’s chair, Janet Yellen, and her colleagues had provided greater certainty for markets, there was some cause for concern about the longer-term impact of the rate rise.

The US dollar rose 1% in Asian trading against a basket of currencies, raising questions about whether investors would redirect capital to higher-yielding US debt and undermine shaky emerging economies.

The fall in the price of oil, which has discomfited markets for several weeks, continued on Thursday. Brent crude fell 21c to $37.18 while West Texas crude was down 12c to $35.40 because of unexpectedly large US inventories.

“Last night’s inventory data from the US was clearly unsettling,” said Ric Spooner, chief market analyst at CMC Markets in Sydney. “We are now seeing signs of the US dollar getting stronger, following on from the Fed.”

Chris Weston, chief market strategist at online trading firm IG in Melbourne, said: “Traders seem to be rejoicing at the mere certainty provided by the Federal Reserve, although I would temper that by saying we have potentially entered a new realm of increased uncertainty.

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“The question is whether this rally continues, making tonight’s US trade very important. In an event like this, the first move might not be the right move.”

Analysts at Citibank’s Asian economic team agreed that while equities and credit market had perked up, the response of commodity market suggested caution.

“We have long argued that early signs of growth in emerging markets would be seen in commodity markets, so we take heed that neither energy nor metal prices shared the optimism of the equities and credit markets,” the analysts said in a report.

Hong Kong’s top central banker, who was obliged to immediately match the Fed’s hike under the Chinese-run city’s peg to the US dollar, said he expected only a modest outflow of capital as a result of the Fed’s move.

China’s central bank also added to the reassuring mood, pencilling in economic growth of 6.8% for next year in a working paper released on Wednesday, down only slightly from an expected 6.9% this year.

A senior researcher at an official Chinese think-tank chimed in, saying the hike would not lead to major economic disruption.

Zeng Gang, director of the Chinese Academy of Social Sciences banking research division, told the official People’s Daily paper that as the rate rise had been widely expected, it had been priced into markets and the announcement impact was limited.

Data showing drops in exports from Japan and Singapore, including big falls in shipments to China, sounded some other sour notes on Thursday but it was expected that the Fed move would allow the Bank of Japan to hold off on expanding its own stimulus at the year’s final BOJ rate review on Friday.


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