Fed raises rate, oil prices and currencies

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SINGAPORE — Asia-Pacific markets rallied on Thursday, tracking U.S. stocks after the Federal Reserve raised benchmark interest rates 75 basis points in a move that equates to the most aggressive hike since 1994.

Japan’s Nikkei 225’s rose nearly 2% after markets opened and it was a sea of green among the automakers and tech stocks. Sony was up nearly 2.4%, Softbank Group rose by about 1.45% while Toyota jumped by nearly 4%.

In Australia, the S&P/ASX 200 was trading higher by about 0.6%. Rio Tinto, Fortescue Group and BHP were all pushing higher by nearly 2%.

Over in South Korea, the Kospi index also went up by 1.61%.

Economic data for Asia Pacific today includes Australian unemployment figures and Japan’s trade data.

Following the rate hike in the U.S., Wall Street was volatile but market indexes rose to session highs after the Federal Open Market Committee took the level of its benchmark funds rate to a range of 1.5%-1.75% — the highest since just before the Covid pandemic began in March 2020.

Fed Chairman Jerome Powell also said during his afternoon press conference that, “either a 50 basis point or a 75 basis point increase seems most likely at our next meeting.”

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The Dow Jones Industrial Average snapped a five-day losing streak, jumping 303.70 points, or 1%, to close at 30,668.53. The S&P 500 rose 1.46% to 3,789.99 while, the Nasdaq Composite gained 2.5% to end the day at 11,099.15.

The Fed said in a statement it was committed to bringing down inflation — currently at a high of 8.6 per cent — to 2%. It also said it would continue to reduce holdings of Treasury securities and agency debt and agency mortgage-backed securities.

Kevin O’Leary, chairman of O’Shares ETFs, says the aggressive 75 basis point rate hike is a signal the Fed has the inflation “bull by its horns” now.

A 1% hike would be better but for now, all signs pointed to the Fed “lassoing” inflation, he added.

Crucially, while the Fed has not flagged another 75 basis point rate hike for the July meeting, it has confirmed its commitment to returning inflation back to the 2% target and this meant the Fed might be willing to sacrifice the economy to achieve this, J.P. Morgan Asset Management Global Market Strategist Kerry Craig says.

“In our view, the risks around a recession in 2023 can’t be ignored,” Craig said.

Clifford Bennett, chief economist at ACY Securities, said a recession was imminent now that the Fed has signaled its intention to rein in inflation and “ignore that this would cause further economic pain.”

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