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Asian Stocks Up as Fed Announces Tapering, but “Patience” on Interest Rate Hikes

Published 04/11/2021, 01:22 pm
Updated 04/11/2021, 01:22 pm
© Reuters.

By Gina Lee

Investing.com – Asia Pacific stocks were up on Thursday morning, with investors digesting the latest policy decision from the U.S. Federal Reserve.

Japan’s Nikkei 225 rose 0.97% by 10:12 PM ET (2:12 AM GMT), with markets re-opening after a holiday.

South Korea’s KOSPI gained 0.72% and in Australia, the ASX 200 edged up 0.18%.

Hong Kong’s Hang Seng Index was up 0.33%.

China’s Shanghai Composite gained 0.51% while the Shenzhen Component inched was up 0.62%.

U.S. shares rose, with the S&P 500, Dow Jones Industrial Average, Nasdaq 100, and Russell 2000 hitting record levels.

The Fed signaled the beginning of asset tapering as it handed down its decision on Wednesday. Although Fed Chairman Jerome Powell indicated that interest rate hikes will not come anytime soon, he added, “we think we can be patient. If a response is called for, we will not hesitate."

Longer-end U.S. Treasury yields halted a rally, while the yield curve remained steeper than before the Fed decision.

Measures of bond-market inflation expectations are climbing up as residual inflation concerns remain. However, investors largely maintained bets on interest rate hike timelines, with the first hike likely in July 2022 and some 55 basis points of increases by the end of 2022.

Monetary policy can “send a message saying rates do need to rise but in a controlled way and not as aggressively as some market pricing suggests,” AXA Investment Managers chief investment officer for core investments Chris Iggo said in a note.

“If they can do that, the risk of a market rout in bonds and equities will be reduced.”

European Central Bank President Christine Lagarde said the monetary authority is “very unlikely” to hike rates in 2022, with investors split as to whether the Bank of England will hike interest rates when it hands down its policy decision later in the day.

The U.S. Treasury also announced the first reduction in its quarterly sale of longer-term debt in more than five years on Wednesday, a reflection of diminishing borrowing needs as COVID-19-era spending also falls.

Investors now await the latest U.S. jobs report, including non-farm payrolls, due to be released on Friday.

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