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

  • Would you like fries with that? US burger chain makes Phnom Penh debut

    California-based The Habit Burger Grill restaurant chain is all set to serve up a delicious array of charbroiled burgers and sides at its newest international location in the centre of Phnom Penh. The Habit is “renowned for its award-winning Charburgers grilled over an open flame,

  • Phnom Penh underpass opens to ease traffic

    Prime Minister Hun Sen has announced a temporary opening of the 488m underpass at the Chaom Chao roundabout in Phnom Penh’s Por Sen Chey district, which was recently completed to connect traffic from National Road 4 to Russian Federation Blvd. The move is to reduce

  • Banteay Meanchey flood victims receive aid

    Prime Minister Hun Sen on Wednesday provided aid to more than 10,000 families affected by flooding in Banteay Meanchey province’s Mongkol Borei district and offered his condolences to the 18 victims who drowned in the province over the past week. He said flooding had occured in

  • PM urges caution as Polish man tests positive for Covid

    The Ministry of Health on Wednesday reported that a 47-year-old Polish man tested positive for Covid-19 after arriving in Cambodia on Monday. There are a total of six Covid-19 patients currently in the country, all of whom are being treated at the Khmer-Soviet Friendship Hospital

  • Show evidence of Chinese military base, critics told

    Prime Minister Hun Sen on Monday said he had had enough of certain countries and opposition groups claiming Cambodia had allowed China to base its military in Cambodia and dared critics to show clear evidence. Hun Sen made the remarks while presiding over a groudbreaking

  • Serving coffee with a side of robots

    The eye-catching glass building surrounded by greenery at the intersection of Streets 371 and 2002 in Phnom Penh’s Sen Sok district is more than just another coffee shop where you can while away a few hours. UrHobby House cafe is filled with robots and characters from