Asian Buyers Resurface after Report Signals Softer Pace of Fed Rate Hikes
The major stock indexes in Asia are trading higher on Friday, picking up were the U.S. markets left off at the close. Although the U.S. markets traded sharply lower for most of the session on Wednesday, they did recapture most of those losses into the close. This late session momentum has carried over to the Asia markets.
At 0446 GMT, Japan’s Nikkei 225 Index is trading 21621.20, up 119.58 or +0.56%. Hong Kong’s Hang Seng Index is at 26226.79, up 70.41 or +0.27%. South Korea’s KOSPI Index is at 2074.13, up 5.44 or +0.26%. China’s Shanghai Index is at 2607.14, up 1.96 or +0.08%.
U.S. Stock Markets
U.S. equity markets settled lower on Thursday, but well off their lows after news hit the market that the U.S. Federal Reserve could tighten monetary policy at a slower pace than previously expected.
Earlier in the session, prices plunged as U.S.-China trade fears escalated after news broke Wednesday that Huawei CFO Meng Wanzhou was arrested by Canadian authorities in Vancouver, where she now faces extradition to the U.S. Investors fear that the arrest has hurt the chances that a permanent U.S.-China trade deal will be reached.
Adding further to the weakness was fear of a potential slowdown in economic growth. This was fueled by an inversion of the yield curve.
Late in the session on Thursday, the major U.S. indexes – the benchmark S&P 500 Index, the blue chip Dow Jones Industrial Average and the tech-based NASDAQ Composite – recaptured most of their earlier losses after The Wall Street Journal reported the central bank is considering whether to signal a wait-and-see approach to rate hikes at its meeting later this month. Furthermore, the report went on to say that Fed officials do not know what their next move on rates will be after December.
The same report from The Wall Street Journal that triggered the recovery in the U.S. equity markets also helped drive down demand for the U.S. Dollar.
Demand for the dollar has been softening since Fed Chair Jerome Powell made dovish remarks in a speech on November 28. At that time, Powell said that U.S. interest rates were nearing neutral levels, which investors interpreted as signaling a slowdown in rate hikes.
Additionally, bullish U.S. Dollar investors have been encouraged to reduce their long positions because the recent sharp falls in U.S. Treasury yields have led to an inversion of the yield curve. This phenomenon often signals a sharp economic slowdown or even a recession down the road.