Asia Pacific share market closed lower on Thursday, 15 December 2016, after the Federal Reserve raised interest rate target by a quarter point, and hinted at a brisker pace of rate hikes next year.
The Federal Reserve yesterday raised the benchmark interest rate by 25 basis points, the first and the only time in 2016, and indicated a faster rate hike pace next year. The Fed released its updated economic projections indicating that the central bank expects to raise rates three times next year, compared to the two times suggested in its September projections.
FOMC expected that with "gradual adjustments" in monetary stance, the economy will continue to expand at a moderate pace and labor market conditions will strengthen "somewhat further". Fed expected inflation to rise back to 2% "over medium term". Overall, Fed maintained that the "actual path of the federal funds rate will depend on the economic outlook as informed by incoming data". Nonetheless, the latest economic projections are slightly more upbeat. Fed projected GDP to grow 1.6% in 2016, 2.1% In 2017 and 1.9% in 2019, revised up from September projection of 1.8%, 2.0% and 1.8% respectively. 2018 GDP growth is projected to be 2.0%, unrevised. Unemployment rate is projected to be 4.7% in 2016, 4.5% in 2017, 4.5% in 22018 and 4.5% in 2019, revised down from September projection of 4.8%, 4.6%, 4.5% and 4.6% respectively. Core PCE is projected to be at 1.7% in 2016, 1.8% in 2017, 2.0% in 2018 and 2.0% in 2019, unrevised. Mainly due to improvement in labor markets, Fed now project federal funds rate to be at 1.4% by the end of 2017, 2.1% by end of 2018 and 2.9% by end of 2019. There is notably upward revision from September projection of 1.1% by the end of 2017, 1.9% by end of 2018 and 2.6% by end of 2019. That is, Fed is indeed expecting 3 more rate hike next year.
The increase in the federal funds rate by 25 basis points was widely expected but investors were unnerved as the Fed also hinted at three hikes in 2017, up from two earlier. The unanimous rate decision came as president-elect Donald Trump prepares to take office with promises to boost growth through fiscal measures. Fed Chair Janet Yellen said some policymakers had begun shifting their assumptions about fiscal policy, while adding Mr Trump's election had put the central bank under a "cloud of uncertainty".
Rising U.S. rates increase funding costs for Asian companies in dollars, and it pulls money from regional markets to the States.
The Hong Kong dollar is pegged to its U.S. counterpart, which means Hong Kong rates rise in sync with those of the U.S. Higher rates. On Thursday, the Hong Kong Monetary Authority raised its base rate by 0.25%age point to 1.0%, matching the overnight interest-rate increase by the Fed.
The Fed's aggressiveness sent the U.S. Dollar Index to 13-year highs, with the index 0.7% higher in Asian trade. The stronger dollar weighed on Asian currencies, with the Indonesian rupiah down 0.7% and the Malaysian ringgit off 0.4%. China set the yuan 0.38% weaker against the U.S. dollar Thursday.
Among Asian bourses
Australia Stocks fall as Fed hike rate
Australian share market finished session with red ink, dragged down by risk aversion selloff, with commodity-related stocks hit hard by the stronger US dollar which surged after the US Federal Reserve raised its interest rate target by a quarter point, and hinted at a brisker pace of rate hikes next year. At the closing bell, the benchmark S&P/ASX 200 index declined 46 points, or 0.82%, to 5538.60, while the broader All Ordinaries index dropped 44.70 points, or 0.79%, to close at 5595.
Energy stocks lost ground as profit booking triggered after oil prices extended losses in Asian Benchmark U.S. crude fell 14 cents to $50.91 a barrel in electronic trading on the New York Mercantile Exchange. It dropped $1.94 a barrel on Wednesday. Brent crude, the international standard, lost 6 cents to $53.84 a barrel in London. Woodside Petroleum declined 2.8% to A$31, Santos 10.7% to A$3.94, and Oil Search 3.1% to A$6.84.
Mining stocks were also down, pressured by falls in commodity prices. Rio Tinto lost 1.4% to A$60.09 and BHP Billiton fell 1.8% to A$25.33. Fortescue declined 0.6% to A$6.29.
Nikkei hits fresh one-year high as yen plunges
The Japan share market closed higher, bucking the regional market trend, thanks to yen depreciation to upper 117 level against greenback after the Federal Reserve raised its benchmark short-term interest rate and hinted there would be more next year. The 225-issue Nikkei average rose 95.49 points, or 0.50%, to end at 19,250.52, marking its highest closing level since Dec. 17, 2015. The Topix index of all first-section issues finished up 8.82 points, or 0.58%, at 1,540.25.
Shares of export related companies advanced as the US dollar surged to fresh 10-month highs against the yen after the Federal Reserve lifted interest rates for only the second time in a decade. Toyota added 1.8% and camera maker Olympus rose 0.7%.
Financial stocks turned down with Mizuho Financial Group falling 0.3% and brokerage Nomura off 0.9%.
Hitachi rose 1% after the Nikkei business daily reported that Tokyo may arrange an aid package, including loans and state investment, totalling one trillion yen ($8.5 billion) for a British nuclear power plant project led by the firm.
China Stocks struggle after Fed raises rates
Mainland China stock market closed at one-month lows, after the U.S. Federal Reserve raised interest rates and signaled a faster pace of interest-rate increases than expected in 2017. Strength in small-caps was offset by a tumble in banking shares, triggered by a dramatic sell-off in bond markets that raised the spectre of liquidity crunch in the banking system. The Shanghai Composite Index fell 0.73% to 3,117.68, while the Shenzhen Composite Index, which tracks stocks on China's second exchange, added 0.67% to 1,972.91. The ChiNext Index, which tracks China's NASDAQ-style board of growth enterprises, jumped 0.65% to close at 1,975.85 points.
China's 10-year and five-year government-bond futures initially traded down Thursday by the daily maximum limit of 2% and 1.2%, respectively. The 10-year instrument is down 1.8%, and the five-year is down 1.2%
The Fed's aggressiveness sent the U.S. Dollar Index to 13-year highs, with the index 0.7% higher in Asian trade. The stronger dollar weighed on Asian currencies. China set the yuan 0.38% weaker against the U.S. dollar Thursday. The yuan traded on the mainland was last down 0.5%, with the more freely traded offshore yuan down 0.2%.
Sector performance was mixed in mainland markets, with gains in tech shares cancelled out by losses in financial and energy stocks. Banking stocks tumbled nearly 2.5% amid an accelerated sell-off in China's bond market. Investors found some solace from gains in small-caps on signs that some foreign investors are buying small-caps after that index's recent weakness.
Hong Kong Stocks wobble as US Fed flags more hikes
The Hong Kong stock market finished deeply in red on worries over capital outflow after the Hong Kong Monetary Authority's chief executive Norman Chan statement that with the US interest rates now rising, it's expected that some of the estimated $130 billion of capital inflow into Hong Kong since 2008 will be exchanged back to the US dollar. All sectors in the city's stock market lost ground, with the rate-sensitive property sector leading the decline. The Hang Seng Index ended down 1.77%, or 397.22 points, to 22,059.40, while the Hang Seng China Enterprises index dropped 2.34%, or 226.99 points, to 9,479.16. Turnover increased to HK$80.8 billion from HK$61.6 billion on Wednesday.
Property counters saw selling pressure after rate hike. CK Property (01113) slipped 2.4% to HK$50.25. SHKP (00016) also fell 2.4% to HK$99.7. Link REIT (00823) slipped 4% to HK$50.4. Fortune REIT (00778) dipped 2% to HK$8.66.
Oil prices were dragged down by rising USD. CNOOC (00883), PetroChina (00857) and Sinopec (00386) fell 3%, 2%, and 2% to HK$10.02, HK$5.91, and HK$5.69.
Indian indices slide as US Fed raises interest rates
Key benchmark indices ended the volatile session with small losses. The barometer index, the S&P BSE Sensex, fell 83.77 points or 0.31% to settle at 26,519.07. The Nifty 50 index lost 28.85 points or 0.35% to settle at 8,153.60. Weakness in Asian bourses weighed on sentiment on the domestic bourses.
Axis Bank rose after the bank announced that its board of directors at its meeting held yesterday, 14 December 2016, approved the allotment of non-convertible debentures aggregating to Rs 3500 crore on a private placement basis.
National Aluminium Company (Nalco) slumped 7.78% after net profit dropped 51.67% to Rs 121.23 crore on 4.47% decline in total income to Rs 1982.92 crore in Q2 September 2016 over Q2 September 2015. The result was announced after market hours yesterday, 14 December 2016.
Elsewhere in the Asia Pacific region: New Zealand's NZX50 shed 0.7% to 6748.62. Indonesia's Jakarta Composite index shed 0.2% to 5254.36. Taiwan's Taiex fell 0.1% to 9360.35. South Korea's KOSPI index was edge down 0.01% to 2036.65. Malaysia's KLCI slipped 0.4% to 1636.99. Singapore's Straits Times index fell 0.8% to 2930.77.
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