Asian Markets Point Higher, U.S. Historic Rate Hike Pressures Yen

Arjun Pandit
15 Jun, 2022
New York City

Asian markets pointed higher after the U.S. Federal Reserve lifted rates more than previously anticipated and held out for a tougher approach to inflation. 

The Federal Reserve raised its key benchmark rate by 75 basis points, higher than previously anticipated 50 basis points, after inflation accelerated in May.

Investors cheered the Fed's aggressive stance on inflation and the largest rate hike since 1994.

In a busy week for central banks, the Bank of England and Swiss National Bank on Thursday are set to announce their rate decision and the Bank of Japan is scheduled to release its policy decision on Friday. 

On Wall Street stocks climbed, bond yields fell, and energy prices eased. 

The S&P 500 index increased 1.3% to 3,785.83 and the Nasdaq Composite index rose 2.4% to 11,086.37.

Futures of crude oil declined $3.01 to $115.91 a barrel but natural gas increased 27 cents to $7.46 a unit. 

The yield on 10-year Treasury notes edged lower to 3.33%. 

 

China Data Shows Optimism, Japan Awaits BOJ Decision 

 

In Wednesday's trading, stocks in China gained but in Japan and India declined ahead of the Fed decision. 

The Bank of Japan is scheduled to commence its two-day policy meeting on Thursday and keep its ultra-low interest rate policy intact despite the widening yields with the U.S. bonds. 

The latest U.S. rate increase will put additional pressure on rates but the central bank is expected to increase its government bond purchases and leave the rates unchanged near zero. 

On Tuesday the Bank of Japan purchased 10-year government bonds for 3 trillion yen or $22 billion to keep bond yields in its target range below 0.25% and said the central bank is prepared to buy more if needed.  

In Wednesday's trading, the Nikkei index declined 1.1% to 26,326.16, the Hang Seng Index gained 1.1% to 21,308.21, and the Sensex index eased 0.3% to 52,541.39. 

Indexes in China closed higher after industrial production increased in May and retail sales fell less than expected. 

Industrial production rose 0.7% in May after falling 2.9% in April and retail sales declined 6.7% after dropping 11.1% in April, the National Bureau of Statistic reported today. 

The data were supported by the gradual relaxing of pandemic restrictions. 

India's trade deficit widened after imports rose faster than exports. 

Merchandise exports in May surged 20.6% to $38.94 billion and imports soared 62.8% to $63.22 billion resulting in a four-fold trade deficit surge to $24.3 billion. 

Trade deficit in April was $6.5 billion and energy, coke, coal and gold imports drove the latest surge. 

The commerce ministry estimated service exports increased 30% to $23.2 billion and imports soared 45% to $14.4 billion resulting in a trade surplus of $8.9 billion. 

Overall exports rose 24% to $62.2 billion and imports surged 59.2% to $77.65 billion resulting in an overall deficit of $15.4 billion compared to the $1.3 billion surplus a year ago. 

Rupee edged lower after the release of the latest trade statistics and closed at 78.71 against one dollar. 

 

European Markets Advance After ECB Emergency Meeting 

 

Markets in Europe traded higher after the European Central Bank's policy committee in an emergency meeting announced a plan to tackle widening sovereign bonds yields. 

Many investors are worried that diverging yields between Germany and France from Greece and Italy could lead to a debt crisis. 

In Wednesday's trading, the DAX index jumped 1.4% to 13,485.29, the CAC-40 index gained 1.4% to 6,030.13, and the FTSE index increased 1.2% to 7,273.41. 

The European Central Bank said it plans to release a new tool to tackle widening sovereign bond yields and ease the debt crisis in the currency zone. 

The yield on 10-year German Bund trade around 1.60% but the yields on similar maturities of Italian bonds surged above 4% and of Greek bonds hovered near 7%. 

The central bank plans to reinvest redemptions from the proceeds of its emergency bond purchasing program in a flexible way. 

The central bank set no limit for the purchase amount of bonds.

Banks in Europe advanced after the announcement and the Italian banks rose between 4% and 5%.