Asian shares firm as Fed tempers aggressive rate hike bets

HONG KONG: Asian shares tracked Wall Street gains on Thursday (May 5) after the US central bank raised interest rates by 50 basis points but sounded a less hawkish tone than some had feared, lifting investor sentiment and sending the dollar lower.

Crude prices, meanwhile, shot up as the European Union spelled out some of the details of its plan to ban the use of Russian oil, heightening concerns about supply.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.93 per cent, although trading was thin with Japanese and Korean markets closed for public holidays.

China’s shares defied the broader rally with rising COVID-19 cases and a strict lockdown in the financial hub of Shanghai weighing on sentiment.

Marcella Chow, Hong Kong-based global market strategist at JP Morgan Asset Management, said the Federal Reserve’s 50-basis point hike was in line with expectations, hence removing some investor concerns about a more aggressive move.

“Given the Asian market has more certainty right now, I think this will probably also cause the market to rally a bit as well,” she told Reuters.

Asia’s gains followed a US rally overnight where the Dow Jones Industrial Average rose 2.81 per cent, the S&P 500 gained 2.99 per cent and the Nasdaq advanced 3.19 per cent.

According to AFP, stocks rallied off the remarks as Federal Reserve Chair Jerome Powell expressed confidence the US central bank could engineer a “soft landing” that tames inflation without sending the economy into a recession.

Major US indices powered about 3 per cent higher, while the dollar retreated against the euro and other currencies.

With inflation at the highest rate in four decades, Powell sent a message directly to the American people, expressing concern for the pain caused by rising prices, and pledging to use all available tools to bring them down.

Hong Kong’s benchmark Hang Seng Index rose 0.77 per cent in early trading, with the tech sector index adding 1.43 per cent.

This week, Hong Kong stocks have edged lower while the offshore Chinese yuan has been volatile though still stronger than it was last week.

Australia’s S&P/ASX 200 also performed strongly with a 0.61 per cent increase.

However, China’s benchmark CSI300 opened 0.16 per cent lower as Chinese markets resumed trade after a three-day holiday.

“There are still (COVID-19) cases (in Shanghai) and different cities so this will continue to also potentially drag consumer and investor sentiment,” JP Morgan Asset Management’s Chow said.