Global indices advance amid Fed rate hike

Bangkok Shares were mostly higher in Europe and Asia on Thursday after the Federal Reserve raised interest rates to their highest level in more than two decades, just as Wall Street expected.

Market attention turned to a decision later in the day by the European Central Bank and to whether Japan’s central bank might alter its longstanding ultra-lax monetary policy at a policy meeting that ends on Friday. ECB President Christine Lagarde all but promised an increase as the bank’s governing council was meeting in Frankfurt, where interest rates are decided for the 20 European Union countries that use the euro. “Today, all eyes will be on the ECB, where a 25 basis point hike is widely expected along with the door being left open for another hike in September,” ING Economics said in a commentary. Germany’s DAX was up 1 per cent at 16,284.76. In Paris, the CAC 40 advanced 1.5 per cent to 7,424.74. Britain’s FTSE 100 was up 0.3 per cent at 7,699.90. A 0.25 percentage point hike would take the ECB’s benchmark rate to 4.25 per cent. The future for the S&P 500 was 0.5 per cent higher while that for the Dow Jones Industrial Average edged 0.1 per cent higher. On Wednesday, the S&P 500 slipped less than 0.1 per cent and was near a 15-month high. The Dow rose 0.2 per cent and the Nasdaq composite slipped 0.1 per cent.

In Asian trading, Tokyo’s Nikkei 225 index gained 0.7 per cent to 32,891.16. The Bank of Japan’s approach has increasingly diverged from the actions of the US Federal Reserve and the world’s other central banks. It has kept its benchmark interest rate at minus 0.1 per cent for a decade, trying to spur more investment and consumer spending, with mixed results. Japan’s inflation has crept higher, surpassing the US rate of 3 per cent with June inflation at 3.3 per cent. But the central bank’s policymakers appear unconvinced that the higher rates are likely to be sustained as other major economies slow, denting demand for Japanese exports. Hong Kong’s Hang Seng index jumped 1.4 per cent to 19,639.11, while the Shanghai Composite index slipped 0.2 per cent to 3,216.67. In Australia, the S&P/ASX 200 added 0.7 per cent to 7,455.90. South Korea’s Kospi climbed 0.4 per cent to 2,603.81. In India, the Sensex fell 0.7 per cent to 66,277.15. Bangkok’s SET rose 1.3 per cent and Taiwan’s benchmark gained 0.5 per cent.

Stocks on Wall Street held steady on Wednesday, while Treasury yields fell after Fed Chair Jerome Powell said no decision had been made about whether to raise rates at its next meeting or beyond. That may have bolstered hopes among traders that Wednesday’s hike could be the last for a long time. Powell said Wednesday that rates will likely need to stay high for a while to drive inflation lower. “It’s really dependent so much on the data, and we just don’t have it yet,” Powell said. The Fed raised its federal funds rate to a range of 5.25 per cent to 5.50 per cent in hopes of wrestling down high inflation. That’s its highest level since 2001 and up from virtually zero early last year. Rate increases work to lower inflation by grinding down on the entire economy, raising the risk of a recession and hurting prices for investments.

Ending them would encourage more borrowing and investment. The economy has so far defied predictions for a recession, largely because of a remarkably solid job market that has allowed US households to keep spending. That has hopes rising that the Federal Reserve can pull off a “soft landing” for the economy where high inflation falls back to its target without a painful recession.

In other trading Thursday, US benchmark crude oil gained 80 cents to $79.58 per barrel in electronic trading on the New York Mercantile Exchange. It fell 85 cents to $79.78 on Wednesday. Brent crude, the international standard, added 66 cents to $83.22 per barrel. The dollar fell to 140.93 Japanese yen from 140.25 yen. The euro rose to $1.1140 from $1.1087.