TOKYO
(Reuters) - The U.S. dollar shone while Asian shares slipped on Thursday after
the U.S. Federal Reserve announced a plan to start shrinking its balance sheet and
signalled one more rate hike later this year.
European
shares are expected to benefit from a fall in the euro against the dollar with
spread betters looking at a higher opening of 0.5 percent in Germany's DAX
.GDAXI and France's CAC .FCHI.
Japan's Nikkei
.N225 gained 0.2 percent as a rise in U.S. bond yields lifted financial shares,
while the yen's fall against the dollar after the Fed's decision helped
exporters.
The Bank of
Japan, as widely expected, left its policy settings unchanged, with markets
awaiting a news conference by its governor later in the day.
MSCI’s
broadest dollar-denominated index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS fell 0.5 percent, with Australian shares among the hardest hit
with fall of 0.8 percent.
Major U.S. share
indexes recovered quickly from initial losses following the Fed's announcement,
with the S&P 500 .SPX ending slightly higher, helped in part by gains in
financials .SPSY and energy shares .SPNY
“While a
rate hike is negative, the fact that the Fed’s confidence in the economy is
strong enough to expect a rate hike can be taken as supportive of market
sentiment,” said Soichiro Monji, chief strategist at Daiwa SB Investments.
The Fed’s
view also prompted a rotation from tech shares into financial shares, which
benefit from higher interest rates, he added.
“In a way,
what the Fed did was not much of a surprise. From now, the markets will be
focusing on individual earnings rather than macro themes,” said Hisashi Iwama,
senior portfolio manager at Asset Management One.
As expected,
the Fed said it would begin in October to trim its massive holding of U.S.
Treasury bonds and mortgage-backed securities acquired in the years after the
2008 financial crisis.
The Fed
signalled it still expects one more interest rate hike by the end of the year,
despite a recent bout of low inflation, but ratcheted down its long-term
interest rate forecasts.
Fed fund
rate futures FFF8 are now pricing in about a 65 percent chance of a rate hike
by December compared to around 50 percent before the latest meeting. Markets
expect the Fed move to coincide with revisions of its economic projections.
The yield on
two-year U.S. Treasury notes jumped to 1.451 percent US2YT=RR, its highest
level since November 2008 late on Wednesday. The 10-year U.S. Treasuries yield
US10YT=RR rose to 2.278 percent, briefly hitting a six-week high of 2.289
percent.
“The markets
reacted to the Fed quite straightforwardly, with shorter yields rising more
than long-dated bond yields. The bond markets have fairly strong conviction
that low inflation and low growth will persist,” said Hiroko Iwaki, senior
strategist at Mizuho Securities.
In the
currency market, the rise in Treasury yields boosted the dollar's
attractiveness. The euro EUR= dropped to $1.1883 from above $1.20 just before
the Fed's policy announcement.
Likewise the
dollar jumped to 112.595 yen JPY=, a two-month high, from around 111.30.
Gold XAU=
also hit a three-week low of $1,296 per ounce.
Oil prices
flirted with multi-month highs, despite a rise in U.S. crude inventories, after
the Iraqi oil minister said OPEC and its partners were considering extending or
deepening output cuts, ahead of the planned meeting between OPEC and non-OPEC
nations on Friday.
Brent crude
futures LCOc1 rose to a five-month high of $56.48 a barrel on Wednesday and
last stood at $56.17, down slightly from late U.S. levels.
U.S.
benchmark West Texas Intermediate (WTI) crude futures CLc1 hit a four-month
high of $50.79 per barrel and last traded at $50.64, down slightly from the
U.S. close on Wednesday.
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