The BSE building (Mint file)
The BSE building (Mint file)

Markets likely to be firm on Fed's rate cut, Asian shares edge higher

  • The Fed reduced interest rates for a second time this year to 1.75%-2.00%, but signalled that further rate cuts were unlikely
  • Central banks around the world have been loosening policy to counter the risks of low inflation and recession

Mumbai: Indian stock markets may see an uptrend on Thursday tracking global cues after the US central bank decided slash interest rates. The US Federal Reserve cut interest rates again on Wednesday to help sustain a record-long economic expansion but signalled a higher bar to further reductions in borrowing costs, eliciting a fast and sharp rebuke from President Donald Trump.

Asian shares edged higher on Thursday, tracking some modest Wall Street gains after the US Federal Reserve cut interest rates as expected but offered mixed signals on the next easing, keeping investors cautious.

The Treasury yield curve flattened as Fed Chairman Jerome Powell dashed hopes he would signal further easing while division among central bankers has increased uncertainty over how much further rates might fall.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.03%. Japan's Nikkei rose 0.46%, while Australian shares rose 0.23%.

The Fed cut interest rates for a second time this year to 1.75%-2.00% in a 7-3 vote but signalled further rate cuts are unlikely as the labour market remains strong. The rate cut was widely expected, but the split vote has raised some concern about predicting the future path of monetary policy. So-called dot-plot forecasts from all 17 policymakers showed even broader disagreement, with seven expecting a third rate cut this year, five seeing the current rate cut as the last for 2019, and five who appeared to have been against even Wednesday’s move.

Central banks around the world have been loosening policy to counter the risks of low inflation and recession. Easier monetary policy has generally supported equities. However, some analysts argue that a bond market rally has gone too far, saying yields have fallen too fast and curves flattened too much. Others are worried about the growing amount of sovereign debt with negative yields.

US stock futures were down 0.06% in Asia on Thursday. The S&P 500 reversed losses to end 0.03% higher after Powell said he did not see an imminent recession or think the Fed will adopt negative rates.

Back home, the Reserve Bank of India (RBI) is studying how non-bank lenders and home financiers price their loans, close on the heels of directing commercial banks to link their loan rates to external benchmarks. The matter came up at an internal RBI discussion on external benchmarks, which are binding on all banks beginning 1 October, according to a Mint report.

The government has banned electronic cigarettes amid growing fears over the health risks posed by vaping, sending shares of conventional cigarette makers soaring. The Union cabinet has made the manufacture, import, sale, distribution and advertisements of e-cigarettes a cognizable offence, finance minister Nirmala Sitharaman said after a Cabinet meeting in New Delhi on Wednesday.

Ride-hailing companies such as Ola and Uber have hit demand for new cars in India as young buyers don’t need to buy cars for commuting and can spend most of their income on electronic gadgets, said RC Bhargava, chairman of Maruti Suzuki India Ltd, the country’s largest carmaker.

Meanwhile, the yield on benchmark 10-year Treasury notes rose to 1.7944%, while the two-year yield rose to 1.7621%.

The spread between two- and 10-year Treasury yields, the most commonly used measure of the yield curve, narrowed to the lowest since 9 September. The curve inverted on 14 August for the first time since 2007 when long-term yields traded below short-term yields, a widely accepted indicator of coming recession.

The yen traded near a seven-week low versus the dollar before a Bank of Japan meeting later on Thursday where policymakers are expected to keep their ultra-easy policy unchanged. The yen stood at 108.42 per dollar, only a few pips from the highest since 1 August.

The Bank of Japan (BOJ) is widely expected to maintain its pledge to guide short-term interest rates at -0.1% and the 10-year government bond yield around 0%. Investors will closely watch BOJ Governor Haruhiko Kuroda’s post decision press conference to see how he assesses risks to Japan’s economic outlook.

US crude futures ticked up 0.03% to $58.13 per barrel. Oil markets have stabilised after attacks in Saudi Arabia over the weekend triggered a supply shock and sent prices soaring, but the volatility is still a risk as Middle East tensions remain high.

Reuters contributed to the story

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