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Market reaction after the U.S. Federal Reserve's 50 basis-point
interest rate rise was a classic case of "buy the rumour and
sell the fact". The dollar weakened, Treasury yields declined
across the board and U.S. stocks jumped by almost 3%, its
biggest rise in two years.
The immediate trigger was the Fed's rejection of even bigger 75
bps rate rises going forward. But all said and done, U.S.
interest rates will rise by nearly 2 percentage points by
year-end, if not more, and that raises some questions about the
outlook for U.S. equities.
Still, Asian markets took their cues from Wall Street on
Thursday. Hong Kong's tech shares index is up more than 1%, also
on expectations Beijing will open the monetary spigots -- the
People's Bank of China pledged policy support to help the
economy after a private sector survey showed a sharp contraction
in the country's services sector.
European stocks are set to open higher.
On bond markets, the Fed's signal eschewing 75 bps moves allowed
rate-sensitive two-year Treasury yields to close 13 bps lower on
Wednesday. That move has carried through, with Australian and
German short-dated yields also lower on the day.
It's been a big week in central banking - and now after the Fed,
the Reserve Bank of Australia and an unscheduled rate hike from
India, all eyes are on the Bank of England.
While the Fed's decision was relatively straightforward, its
counterpart in London has a trickier job at hand, trying to
balance soaring inflation with growth risks caused by a
cost-of-living squeeze.
For Thursday, money markets comfortably predict a quarter-point
hike to 1% but a Reuters poll of economists finds some
uncertainty over the future rate hike path.
Elsewhere, oil prices which rallied as much as 5% on Wednesday
on news of a planned European Union ban on Russian oil,
consolidated those gains. China's dire services PMI is clearly a
dampener.
Key developments that should provide more direction to markets
on Thursday:
Central bank meetings: United Kingdom, Norway, Czech Republic,
Poland
China's services activity falls at second sharpest rate on
record - Caixin PMI
Shell posts record profit on high energy prices and trading
boost
(Reporting by Saikat Chatterjee; Editing by Sujata Rao)
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