Asian stocks up as investors shrug off tech rout, eye Fed
- Author: Zachary Reyes Jun 14, 2017,
Jun 14, 2017, 8:38
With the Fed widely expected to raise interest rates at its two-day meeting that ends on Wednesday, investors will be focusing on whether the central bank thinks the U.S. economy is robust enough to withstand further rate hikes through 2017 and how it plans to whittle down its massive balance sheet, Reuters reported.
And worldwide agencies have lately issued upbeat reports on the global picture after persistent weakness in the years since the Great Recession. And economies in the United States and overseas are plodding along at a pace that hardly suggests robust health. The HKMA has increased its base rate three times since 2015, in lock step with the Fed to maintain the currency's peg with the United States dollar.
Mortgage rates for 30- and 15-year fixed home loans rose today, while 5/1 ARMs held steady, according to a NerdWallet survey of current mortgage rates published by national lenders Tuesday morning.
Still, for now, the outlook is at least encouraging.
The turnaround is being led by China's resumed purchases of U.S Treasuries, after it cut holdings previous year by the most since 2000. However energy companies are climbing with the price of oil. Also, investors are optimistic that President Donald Trump's tax cuts and his $1 trillion infrastructure plan will bolster the economy.
After the Fed raised rates on December 14, 2016, from 0.25%-0.5% to 0.5%-0.75%, the Dow fell 128 points to an intraday low. Mr Mickey Levy of Berenberg Capital Markets pointed to falling long-term interest rates and rising equities prices, with the S&P 500 up 8 per cent since the start of the year. Since then, the recovering economy and improved unemployment rate, at 4.3 percent, have prompted the central bank to gradually raise rates. But with inflation expectations falling - US breakeven rates are at the lowest since November even as the Fed meets this week - and economic data surprises tilted toward the negative, the discrepancy between real and nominal rates may change.
Still, the American economy is hardly sizzling. It inched ahead a year ago at a meager 1.6 percent.
The Fed had kept its benchmark rate at a record low near zero starting in late 2008 to try to boost consumer and business borrowing and lift the country out of the worst downturn since the 1930s. Most economists do expect USA growth to pick up this year after expanding at a dismal 1.2 percent annual pace from January through March.
And while first-quarter GDP growth was revised upwards by 0.5 point to 1.2 per cent, it is still no better than sluggish. Already, hiring has slowed. No; not if one is looking exclusively at the economic data. Germany's DAX gained 0.6 percent to 12,760.34. Only when workers can generate more value per hour on the job do they generally accelerate economic growth and enjoy higher incomes.
Despite a relatively recent upbeat assessment, for instance, the World Bank calls the global economy "fragile".
However, if the Fed doesn't raise rates, it could cause investors to panic as the Fed didn't do what was expected.
Sharper-than-expected rate hikes could, for example, rattle investors and drive up the value of the USA dollar as more investors pour money into the haven of Treasurys.
Historically, the HKMA would buy Hong Kong dollars when the currency fell to 7.83, rather than waiting for it reach the 7.85 lower limit of the trading band. Southeast Asia in particular is often vulnerable because of dollar-denominated debt serviced in local currencies, an arrangement dubbed "Original Sin" by economists Barry Eichengreen and Ricardo Hausmann after the region's 1997-98 meltdown.
The trick is to avoid a reprise of the 2013 "taper tantrum," triggered when Yellen's predecessor, Ben Bernanke, said the Fed would begin scaling back its bond purchases.