Asian Shares Rise After Fed Says Economic Aid Will Wind Down

Japan’s benchmark Nikkei 225 gained nearly 1.0% in early trading to 29,809.67. South Korea’s Kospi added 1.0 per cent to 3,005.11. Australia’s S&P/ASX 200 edged up 0.2 per cent to 7,405.20. Hong Kong’s Hang Seng added 0.4 per cent to 25,131.16, while the Shanghai Composite rose 0.3 per cent to 3,509.13.

Analysts said the signs from the Fed continued to be dovish, as well as hawkish, reassuring global markets that interest rates weren’t going to be raised for some time.

“We got a ‘dowkish’ Fed move,” was the way RaboResearch characterized the message.

But long-term worries about Asian economies remain because of concerns there may be a sixth wave of coronavirus infections, despite growing signs of a return to normal economic activity and a freer flow of people traveling in some nations. Eyes also remain on earnings reports expected from an array of companies in Asia, including Japanese automakers and technology companies.

On Wall Street, the S&P 500 rose 0.6 per cent and the Dow Jones Industrial Average added 0.3 per cent, both marking their fifth straight gain. The Nasdaq climbed 1%, extending its winning streak to an eighth day. All three indexes set their latest record closing highs.

In a statement released at 2 p.m. Eastern, the Fed said it will begin reducing its $120 billion in monthly bond purchases in the coming weeks by $15 billion a month. If that pace is maintained, the Fed could be done winding down its bond purchases as early as June. At that point, the Fed could decide to begin raising its key short-term interest rate, which affects many consumer and business loans.

The central bank reserved the right to change the rate at which it reduces the bond purchases, which have been intended to hold down long-term rates and spur borrowing and spending.

The Fed’s announcement was in line with what economists and markets expected as the central bank moves to combat inflation that now looks likely to persist longer than it did just a few months ago.

“Much of the bond tapering announcement was already priced into markets and shouldn’t have come as a surprise to anyone that was paying attention to what the Fed has been indicating for most of this year,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “But the markets are already turning their attention to how soon the Fed will begin raising interest rates and how quickly they will raise them.”

The S&P 500 rose 29.92 points to 4,660.57. The Dow gained 104.95 points to 36,157.58. The Nasdaq added 161.98 points to 15,811.58. Smaller-company stocks outpaced the broader market in a sign that investors were feeling confident about economic growth. The Russell 2000 climbed 42.42 points, or 1.8 per cent, to 2,404.28, its second straight all-time high.

Technology stocks and a mix of companies that rely directly on consumer spending accounted for a big slice of the S&P 500′s gains. Adobe rose 2.3 per cent and Tesla rose 3.6 per cent to a record high.

Bond yields rose broadly after the Fed’s statement. The yield on the 10-year Treasury note rose to 1.59 per cent from 1.54 per cent late Tuesday. It was trading at 1.57 per cent shortly before the Fed released its policy statement.

The Fed’s latest statement and policy shift comes amid persistent rising inflation that has cut into corporate operations and raised prices on raw materials. It is also making finished goods more expensive, raising concerns about whether consumers will cut back on spending as prices rise.

At a news conference Wednesday, Fed Chair Jerome Powell stressed that the outlook for inflation looks highly uncertain, limiting the ability of the Fed to tailor its policies in response. He suggested that inflation should slow sometime next year as supply bottlenecks ease, but that the Fed cannot be certain that it will.

The central bank and investors have also been closely monitoring the recovery in the employment market, which has been lagging the broader economic recovery. The Labor Department will release its jobs report for October on Friday.

In energy trading, benchmark U.S. crude slipped 95 cents to $79.91 a barrel. Brent crude, the international standard, lost 80 cents to $81.19 a barrel.

In currency trading, the U.S. dollar rose to 114.16 Japanese yen from 113.98 yen. The euro cost $1.1607, down from $1.1610.