By Gina Lee
Investing.com – Asia Pacific stocks were mostly up on Thursday morning, with surging U.S. stocks and bonds providing a boost. Investors breathed a sigh of relief after the U.S. Federal Reserve’s latest policy decision was as expected and averted concerns of larger-than-expected hikes.
China’s Shanghai Composite was up 0.53% by 10 PM ET (2 AM GMT) while the Shenzhen Component fell 0.79%. Chinese markets re-opened after a holiday, and the Caixin services purchasing managers index was 36.2 in April 2022.
In Australia, the ASX 200 rose 0.63%, with data released earlier in the day showing that building approvals contracted 18.5% month-on-month in March 2022. The data also showed that exports grew 0%, imports contracted 5% month-on-month, and the trade balance stood at AUD9.314 billion ($6.66 billion).
Hong Kong’s Hang Seng Index rose 1.22%.
Japanese and South Korean markets are closed for a holiday.
Australian debt rallied after a drop in the two-year U.S. Treasury yield, while there is no cash Treasuries trading in Asia due to the holiday in Japan.
The Federal Open Market Committee hiked its interest rate to 1%, the largest increase since 2000, as it handed down its policy decision on Wednesday. Fed Chairman Jerome Powell said the 75-basis points super-hike feared by investors is “not something that the committee is actively considering,” adding that policymakers view the “neutral” level of the fed funds rate to be 2% to 3%.
“The market had pretty much fully priced in today’s actions,” Doubleline Group LP fund manager Ken Shinoda told Bloomberg.
“In fact, I think today’s actions were a little bit less hawkish than maybe some had expected.”
The Fed also said it would allow its holdings of Treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of $47.5 billion, stepping up over three months to $95 billion.
The market reaction is likely to evolve as investors digest Powell’s commentary, but swaps linked to Fed meetings are now pricing in less than 150 basis points of further rate hikes over the June, July, and September 2022 decisions.
“The market is way too optimistic about the Fed’s ability to tame inflation,” Quadratic Capital Management LLC chief investment officer Nancy Davis said in a note.
“We may be facing a stagflation environment.”
Ongoing risks include tighter monetary policy, alongside the ongoing war in Ukraine precipitated by the Russian invasion on Feb 24, and China’s COVID-19 outlook. The European Union also plans to ban Russian barrels over the next six months, while wheat prices rose on the possibility of export curbs by India, a major grower.
Across the Atlantic, the Bank of England will hand down its policy decision later in the day, where it is expected to hike rates to their highest level in 13 years.
The U.S. will release its jobs report, including non-farm payrolls, a day later.