Asian Investors Like Fed Minutes, but US-China Trade Negotiations Remain ‘Main Focus’

The ongoing trade negotiations between the United States and China remain the “main focus” for markets and are likely to “provide the next catalyst for a strong move in sentiment,” Rakuten Securities Australia said in a morning note, following the release of the U.S. Federal minutes at 19:00 GMT.
James Hyerczyk
Bull Market 1

The major Asia/Pacific stock indexes are trading higher, following the lead of Wall Street that saw a volatile two-sided trade before settling higher. Indecision is the theme as traders try to interpret the tone of the newly released Fed monetary policy minutes. Traders appear to be asking, “Were they hawkish, dovish or noncommittal?

At 04:31 GMT, Japan’s Nikkei 225 Index is trading 21512.39, up 80.90 or +0.38%. Hong Kong’s Hang Seng Index is at 28664.11, up 150.06 or +0.53%.

In China, the Shanghai Index is at 2771.28, up 10.06 or +0.36%. The South Korean KOSPI Index is at 2240.68, up 1.40 or +0.03% and in Australia, the S&P/ASX 200 is trading 6147.30, up 50.80 or +0.83%.

The ongoing trade negotiations between the United States and China remain the “main focus” for markets and are likely to “provide the next catalyst for a strong move in sentiment,” Rakuten Securities Australia said in a morning note, following the release of the U.S. Federal minutes at 19:00 GMT.

The firm went on to say, “Hopes that the US will extend the March 1 tariff deadline are growing and any confirmation of this should provide a relief rally across stocks and risk trades with implementation probably leading to a strong sell off.”

Fed Said Nothing to Kill Bullish Tone

Based on the reaction in the U.S. markets, which finished higher for the session on Wednesday, the Fed minutes are being called dovish. This type of assessment tends to be bullish for stocks because it eases pressure from rising interest rates.

In its minutes, the Fed judged that a “patient” approach to interest rate hikes would be prudent as it continued to weigh various headwinds to growth. These headwinds included “the possibilities of a sharper-than-expected slowdown in global economic growth, particularly in China and Europe, a rapid waning of fiscal policy stimulus, or a further tightening of financial market conditions.”

The minutes also showed Fed policymakers spent a lot of time discussing market conditions, particularly on the emphasis that Fed actions were having on prices of risky assets like stocks and corporate bonds. That being said, the Fed also signaled they will soon lay out a plan to stop letting go of $4 trillion in bonds and other assets, but are still debating how long their newly adopted “patient” stance on U.S. rates will last.

U.S. Markets Finish Slightly Higher in Choppy Trade

U.S. investors reacted as if they believed the Fed struck a dovish tone in its minutes, particularly with its comments about its balance sheet. Bullish investors want the Fed to stop reducing its balance sheet, which they view as a de facto tightening of monetary policy conditions.

In other news, the CBOE Volatility Index (VIX), considered the best gauge of fear in the market, was down 5.7 percent around 14. The blue chip Dow Jones Industrial Average and the technology-driven NASDAQ Composite are in the midst of an eight-week winning streak, while the benchmark S&P 500 Index is up seven of the past eight weeks.

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