Asian Shares Mostly Rise as Investors Digest Fed’s Interest Rate Signals

Asian shares mostly rose Friday following the U.S. Federal Reserve’s message on raising short-term interest rates by late 2023. 

Japan's benchmark lost earlier gains and inched down less than 0.1 per cent in afternoon trading to 29,009.75. South Korea's Kospi edged 0.2 per cent higher to 3,272.42. Australia's S&P/ASX 200 rose 0.1 per cent to 7,368.90. Hong Kong's Hang Seng jumped 0.7 per cent to 28,769.94, while the Shanghai Composite gained 0.1 per cent to 3,530.32.

In an attempt to help companies weather the pandemic, the Bank of Japan extended a lending program by six months, until March 2022, and reaffirmed that it would keep its current easy monetary policy.

“Japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of Covid-19 at home and abroad,” the Bank of Japan said in a statement.

The Fed's comments came Wednesday, and global markets had already initially reacted Thursday. But comments about the possibility of slowing the central bank's bond-buying program are rippling through markets. Such support has been a key reason for the stock market's resurgence to records.

The S&P 500 slipped less than 0.1 per cent to 4,221.86 after meandering from a 0.2 per cent gain to a 0.7 per cent loss. Most of the stocks in the index and across Wall Street were lower, but gains for Apple, Microsoft and a few other tech heavyweights helped offset the losses.

The Dow Jones Industrial Average dropped 0.6 per cent to 33,823.45, while the Nasdaq composite rose 0.9 per cent, to 14,161.35, lifted by the gains for tech and other high-growth stocks.

In the bond market, the yield on the 10-year Treasury note gave back nearly all of its spurt from a day before. It fell back to 1.51 per cent from 1.57 per cent late Wednesday. 

The two-year yield, which tends to move more with expectations for Fed actions, was steadier. It rose to 0.22 per cent from 0.21 per cent. 

The first action the Fed is likely to take would be a slowdown in its $120 billion of monthly bond purchases, which are helping to keep mortgages cheap, but the Fed's chair said such tapering is still likely "a ways away.”

Any easing up on the Fed's aid for the economy would be a big change for markets, which have feasted on easy conditions after the central bank slashed short-term rates to zero and brought in other emergency programs.

While the economy still needs support, the recovery is proving to be strong enough that it does not need the same emergency measures taken at the beginning of the pandemic, said Stephanie Link, chief investment strategist and portfolio manager at Hightower.

“We are going to get a taper," she said. “They need to, we do not need an emergency stimulus at this point.” 

Widespread vaccinations are helping the economy explode out of its coma. At the same time, a rise in prices for raw materials lead to companies across the economy raising their own prices for customers. 

Jump in prices is fueling concerns over inflation - whether it will be temporary or long-lasting. 

The reality could be more complicated. The rise in commodity prices is likely tied to increases in demand as the economy recovers, but rising wages will likely be longer lasting as employers increase pay in order to attract workers, Link said.

Investors got a bit of disappointing economic news when the Labor Department said the number of Americans who filed for unemployment benefits last week rose slightly. The total of 412,000 workers filing for jobless benefits was worse than economists expected. If it proves to be a trend rather than an aberration, it could push the Fed to hold the line longer on its support for the economy.

Stocks of companies whose profits are most closely tied to the strength of the economy and to interest rates had some of the market's sharpest losses.

In energy trading, benchmark U.S. crude fell 39 cents to $70.65 a barrel in electronic trading on the New York Mercantile Exchange. It fell $1.11 to $71.04 per barrel on Thursday. Brent crude, the international standard, lost 50 cents to $72.58 a barrel.

The U.S. dollar fell to 110.03 Japanese yen from 110.23 yen. The euro inched down to $1.1907 from $1.1908.