Stocks gained and major currencies rallied against the US dollar after Wednesday's Fed's decision to halt rate hike.
January 31, 2019 | AtoZ Markets - On Wednesday, the Federal Reserves in its first 2019 FOMC meeting, decided to put rate hike on hold. In December 2018, rates were raised and there was a hawkish 2019 undertone relating to further rate hikes. However, toward the end of the year, the Fed's tone turned dovish and the market expected a rate hike 'cease fire' in 2019. That was the case yesterday, Wednesday, as the rates were held unchanged. After the Fed's decision, major US stocks gained and major currencies climbed amid broad dollar weakening.
Dollar Falls, Stocks Rise and other Currencies Gain
After strong US earnings and Fed's rate-rise halt, US stocks extended their earnings-driven 2019 gains. The gain has extended to Thursday to cap a profitable month for the US stocks. Treasury yields on the other hand fell and the Dollar retreated. Asian equities and Indices gained. European stocks also gained as London FTSE 100 was up by 0.5% while German Dax 30 rose 0.7%. The rise in Asian stocks was buoyed by an ease in concern over rising US dollar funding costs for Asian and emerging market companies. Despite these positive developments in the Asian region, the main concern is on the US-China trade talks as Tai Hui, a JP Morgan asset management strategist has warned that:
''The FOMC statement last night cleared one of two hurdles for Asian and emerging market risk assets to move higher. The other hurdle is of course the US-China trade negotiations, which is much more challenging''.
Upbeat in some of these Asian regions might cause some rate cuts this year with their foreign exchange pushing higher against the Dollar and their ''inflation largely under control and likely to remain that way, and global headwinds to growth growing'' according to ING economist, Robert Carnell.
Equities Drive Higher in Asia and Emerging Markets
The Hong Kong stock index - Hang Seng, rose 1.2% while China's CSI 300 Index gained 1.1%. Tokyo's Topix gained 1.1%, supported by rises in the industrial, energy and technology sectors. Australia's ASX metal and mining index hits its best week in two years following the potential declines for iron ore exports in Brazil, a major rival to Australia. The main S&P/ASX 200 Index lost 0.4%, after it was dragged lower by drops in telecoms and financial stocks.
Foreign Exchange (FOREX) And Commodities
Chinese Yuan strengthened to a new six-month high while the Japanese yen rose 0.3% to the dollar, post-FOMC. The commodity-driven Aussie and New Zealand dollar held on to a gainful week. Australia Dollar has extended this week's gain to 2.8% so far. Pound Sterling hit 1.32 after gaining 6.1% from 2nd January buoyed by the House of Commons Brexit Votes. Euro extended this week gains to 1.78% as it hit 1.15 again after rejecting 1.13.
Gold rallied 1.32 after gaining 10% from 13th November 2018 to hit $1,324 per ounce. It had stayed below $1,300 in the last few weeks but finally broke above it this week with a 1.77% gain. Oil prices also rose. Brent crude was up by 0.8% to trade at $62.17 while the WTI crude continued this year upside after gaining 23% in January to hit $54 per barrel. The Oil prices came from a bad 2018 3rd quarter when WTI crude slumped to $42 from $76 high.
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