Logo of Phnom Penh Post newspaper Phnom Penh Post - Asian markets mostly up: Fed slashes interest

Asian markets mostly up: Fed slashes interest

Content image - Phnom Penh Post
A man walks past a quotation board displaying a share price of the Tokyo Stock Exchange in Tokyo. Most Asian and European equities rose on Wednesday after the Federal Reserve slashed interest rates. AFP

Asian markets mostly up: Fed slashes interest

Most Asian and European equities rose on Wednesday after the Federal Reserve slashed interest rates to combat the economic fallout from the coronavirus, brushing off a Wall Street sell-off that was fuelled by concerns the central bank was panicking.

The surprise cut came as central banks around the world pledge to do what they can to mitigate the fallout from the disease, which continues to spread to new countries and is crippling economic activity.

In announcing the reduction, the bank said US fundamentals “remain strong” but warned that the “coronavirus poses evolving risks to economic activity”, the Federal Open Market Committee said in a statement.

The move, which came two weeks before the Fed’s next planned policy meeting, initially sent Wall Street rallying, but traders soon reversed course as they grew increasingly nervous about the economic outlook.

It also followed a much-anticipated but eventually underwhelming conference call between G7 finance ministers, which said only that they would use “all appropriate policy tools” to keep the virus epidemic from throttling growth.

Analysts questioned the Fed’s timing.

“The decision by the Fed was misguided from an image point of view as it gave off the impression they are extremely worried about the coronavirus situation,” said CMC Markets analyst David Madden.

“And that’s why US stocks fell, as traders picked up on that nervousness. Cutting rates in a rushed fashion projects the wrong image.”

He added that the reduction also meant that with borrowing costs already low, the bank had limited its scope for action in future.

AxiCorp’s Stephen Innes called it “a questionable use of limited ammunition”, while Kerry Craig at JP Morgan Asset Management said the move “may have misfired”.

All three main indexes on Wall Street ended almost three per cent down.

However, Asian investors battled to build on the previous day’s gains and Tokyo ended up 0.1 per cent, while Shanghai added 0.6 per cent. Singapore, Wellington, Manila, Taipei and Bangkok also rose, with Jakarta up two per cent on hopes for further Indonesian government stimulus.

Seoul was the standout, surging more than two per cent as South Korea – which is the worst-hit country outside China – reported a sharp drop in new cases of the virus, while the government is planning a $10 stimulus budget.

Hong Kong eased 0.2 per cent as a gauge of manufacturing, construction, wholesale, retail and services in the city fell to its lowest level in February since it started being recorded in mid-1998.

The market was being supported by the city’s de facto central bank cutting rates with the Fed owing to the local dollar’s link to the US unit.

Sydney shed 1.7 per cent, with Mumbai off 0.9 per cent.

In early trade, London rose 0.2 per cent, Paris added 0.1 per cent and Frankfurt was flat.

Oil up on output cut hope

Despite the broad gains, observers pointed out that the effect of central bank action was limited and world leaders needed to work together to battle the outbreak, which has killed around 3,200 people and infected more than 93,000.

“As the spread of the coronavirus continues and the chances of containment become slimmer, the impact on the global economy is likely to be sizeable,” said Anna Stupnytska, of Fidelity International.

“While easier monetary policy helps sentiment, central banks should not be acting in isolation – the governments should step in with fiscal measures that are timely and well designed, supporting the economies that struggle not just from the virus itself but also from preventative measures that – in some cases – have ground activity to a halt.”

Tuesday also saw Australia and Malaysia cut rates, while other banks are expected to soon follow suit.

The rate cut sent yields on safe-haven 10-year US Treasuries, a go-to asset in times of turmoil, below one per cent for the first time on record. Gold, another fallback for worried investors, jumped more than two per cent to $1,634.

The dollar, which tanked on Tuesday, continued to suffer selling in Asia, with higher-yielding, riskier units benefitting. The South Korean won was among the big gainers, adding 0.7 per cent with hopes for government or central bank support also boosting that currency.

Indonesia’s rupiah, the Australian dollar and Chinese yuan all rallied.

Oil prices added more than one per cent after OPEC advisers suggested the group, along with other producers including Russia, slash output by up to a million barrels a day.

The recommendation comes as the oil big-hitters prepare to meet this week to discuss the crisis, which has hammered global demand for the commodity.

MOST VIEWED

  • Man Covid-19 positive after Thailand trip

    The Ministry of Health on Saturday reported the third Covid-19 case in less than two weeks, bringing the total to 125. The man, a 26-year-old from Tbong Khmum province's Tbong Khmum district, arrived at the O'Beichoan border checkpoint in Banteay Meanchey province on Thursday. He is

  • Kingdom's GDP growth to narrow -1% to -2.9%, World Bank says

    The World Bank expects further recoil on Cambodia’s gross domestic product (GDP) growth to between minus one per cent and minus 2.9 per cent for 2020 as its main growth drivers – tourism, manufacturing exports and construction – take a beating due to Covid-19, its latest economic update

  • Vietnam: Tougher sentences for child abusers

    Several National Assembly (NA) deputies in Vietnam are calling for tougher penalties to be handed down to child abusers. They hope stricter punishments will act as a strong deterrent to prevent offenders committing further offences in the future. Extreme measures such as chemical castration were

  • Central bank to shun small US banknotes

    The National Bank of Cambodia (NBC) is considering not accepting smaller denominated US dollar banknotes – $1, $2 and $5 – from banks and microfinance institutions (MFIs) which it said are flooding its stockpile as the demand for those notes is low. While some banking insiders welcomed the move as

  • PM lauded in Covid-19 fight

    World Health Organisation (WHO) director-general Tedros Adhanom Ghebreyesus sent a letter to Prime Minister Hun Sen thanking him for following the WHO’s guidance and commending Cambodia’s efforts in the fight against Covid-19. In his letter made public by the Ministry of Foreign Affairs

  • Workers return, hope for salaries

    More than 600 factory workers in the capital’s Chaom Chao commune in Por Sen Chey district returned to work after the factory’s owner promised to pay their salaries in instalments until the middle of next month. On Tuesday and Wednesday, more than 600 workers gathered