Asian markets rally, dollar down as Fed signals slower rate hikes (WRAP)

Asian equities rallied and the dollar extended losses after the Federal Reserve signalled it would slow down its pace of interest rate hikes, providing some much-needed respite to investors fretting over the cost of borrowing. Dealers are also keeping an eye on top-level talks between China and the United States aimed at resolving their long-running trade war, which kicked off on Wednesday. The US central bank sparked a flurry of equity buying after chairman Jerome Powell said the case for lifting rates had “weakened somewhat” as the
global economy stutters. “In this environment, we believe we can best support the economy by being patient in evaluating the outlook before making any future adjustment to policy,” he said. The Fed also said it could slow down the reduction of its securities holdings, which would also help keep rates lower.

“Wow — Powell to markets — we hear you and we have adjusted policy
accordingly,” Chris Rupkey, chief financial economist at MUFG Union Bank,

The Fed “also caved on the balance sheet by saying interest rates are
still the primary policy making tool, but they are prepared to adjust the
pace of balance sheet normalisation if economic and financial developments
require it”, Rupkey added.

The news provided a further boost to markets, which were dragged for most
of 2018 by concerns that rising rates would make it costlier for them to
borrow to invest.

Wall Street rallied, with dealers there also cheering healthy earnings
from big-hitters, including Facebook and Boeing.

Those gains filtered through to Asia, where Tokyo ended the morning 0.9
percent higher.

– Trade talks in focus –

Hong Kong and Shanghai were also up as a gauge of factory activity in
China improved slightly in January from last month.

While the Purchasing Managers Index (PMI) showed contraction, it beat
forecasts, though observers warned the figures were helped by producers
stepping up work ahead of the Lunar New Year next week.

Elsewhere, Singapore rose 0.5 percent and Sydney added 0.2 percent, while
Wellington and Manila were sharply higher.

Seoul, however, dipped 0.1 percent.

The dovish signal from the Fed sent the dollar tumbling against most other
currencies Wednesday and extending the losses in Asia.

The greenback remained stuck below 109 yen, while the euro and the pound –
– which have suffered some turbulence over the Brexit saga in recent days —
were also slightly higher.

The Australian dollar rallied 0.8 percent, while the South Korean won was
0.4 percent higher and Indonesia’s rupiah put on 0.4 percent. The New Zealand
dollar, the South African rand and the Russian ruble were also well up.

China’s yuan was sitting at a six-month high.

Focus now turns to the much-anticipated trade talks, with China’s top
economic envoy in Washington as the world’s economic superpowers try to bring
an end to a long-running crisis that has sent shudders through global

However, the two-day talks are taking place under a cloud after the US
charged Chinese telecom titan Huawei on numerous counts of fraud and tech

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 0.9 percent at 20,740.64 (break)

Hong Kong – Hang Seng: UP 0.8 percent at 27,871.02

Shanghai – Composite: UP 0.6 percent at 2,590.40

Dollar/yen: DOWN at 108.89 yen from 109.02 at 2200 GMT

Pound/dollar: UP at $1.3117 from $1.3111

Euro/dollar: UP at $1.1493 from $1.1483

Oil – West Texas Intermediate: UP 34 cents at $54.57 per barrel

Oil – Brent Crude: UP 53 cents at $62.18 per barrel

New York – Dow: UP 1.8 percent at 25,014.86 (close)

London – FTSE 100: UP 1.6 percent at 6,941.63 (close)