Asian stocks and US futures edged higher on Thursday as investors brushed aside US Federal Reserve comments that interest rates won’t fall this year and instead looked ahead to eventual policy easing.
An Asia-wide gauge of equities was on course for its best day in three weeks, helped by an advance in Hong Kong shares. Stocks in mainland China whipsawed as they resumed trading after a three-day holiday break, while Australian and South Korean shares trimmed early declines.
Futures contracts for the S&P 500 and the Nasdaq 100 were moderately higher after a drop on Wednesday, when the turmoil in US regional banks added to market volatility on Wall Street.
The moves followed an increase of 25 basis points in the benchmark Fed rate, as widely expected, to a range of 5% to 5.25%. Comments from chairman Jerome Powell opened the door for a pause in June but he played down the prospect of rate cuts later in the year — a scenario firmly reflected in market pricing.
“We feel like we’re getting close, or maybe even there” when it comes to raising interest rates sufficiently to counter inflation, Powell said during a press conference on Wednesday afternoon.
But Powell also ruled out interest rate cuts in 2023, a comment that sent US stocks lower in their final shift of the day.
Australian bonds rose on Thursday following gains in US Treasuries, although trading for the latter was closed in Asia due to a holiday in Japan. The yen extended a rally against most of its Group-of-10 peers, while the Bloomberg dollar index fell for a third day. Oil retraced some of the losses it made earlier this week when concerns over global growth weighed on the commodity.
Shares of the US regional lender PacWest Bancorp slumped 60% in US postmarket trading Wednesday, reigniting fears about bank stability after sources said the Beverly Hills-based company had been weighing a range of strategic options, including a sale.
“The tightening in credit conditions will put some significant downward pressure on the economy,” Michelle Girard of US NatWest Markets said on Bloomberg Television. “You will see the Fed in a position to move policy to a less restrictive stance sooner than what the Fed chairman today was suggesting.”
The rate debate will resume again later Thursday, with the European Central Bank taking centre stage. Policymakers are expected to raise the deposit rate by a quarter-point to a 3.25%, which would mark a slowdown in their hiking cycle. The decision is expected at 2.15pm in Frankfurt, followed by President Christine Lagarde speaking at a press conference.
“A potential Fed pause, but no Fed pivot yet,” said Jason Pride at Glenmede. “The Fed is telegraphing that additional monetary tightening may or may not occur, but rate cuts do not yet appear to be on the table.
“The Fed’s leadership is working hard to thread the needle between telegraphing too much tightening while also not agreeing with the market’s rate-cut narrative.”