12, October 2017

Asian stocks at 10-year highs as a third rate hike is more likely

Asian markets moved to a 10-year high on Thursday, following the release of Fed minutes, which increased expectations for a rate hike later this year.

Australia ASX +23.30 +0.40% 5,864.10 CLOSED

Shanghai Comp -10.94 -0.32% 3,377.34 OPEN

Hang Seng Index +90.33 +0.32% 28,479.90 OPEN

Nikkei 225 +73.45 +0.35% 20,954.72 CLOSED

TSEC 50 Index +70.25 +0.66% 10,711.44 CLOSED

Wall Street boosted Asian stocks with a strong lead, with the top three indexes closing at fresh records as a market-friendly candidate is expected to replace Fed Chair Janet Yellen.

The Dow Jones Industrial Average ended to the upside at 22,871.68, while the S&P 500 added 0.18 percent and the Nasdaq Composite closed at 6603.55, rising 0.25 percent.

Minutes from the September meeting of the Federal Open Market Committee show policymakers are expecting economic expansion and seeing a potential third rate hike this year.

"Consistent with the expectation that a gradual rise in the Federal funds rate would be appropriate, many participants thought that another increase in the target range later this year was likely to be warranted if the medium-term outlook remained broadly unchanged," members of the FOMC explained in the minutes.

As for inflation, one key benchmark for the central bank when it comes to defining the course of monetary policy, Fed officials were concerned about long-term effects of low inflation levels.

"Many participants expressed concern that the low inflation readings this year might reflect not only transitory factors, [...] a few of these participants thought that no further increases in the Federal funds rate were called for in the near term."

In terms of the economic impact of recent hurricanes Harvey and Irma, FOMC members showed little concern, explaining history shows negative effects will be soon reverted “as rebuilding got under way and economic activity in the affected areas resumed.”

According to Fed funds tracked by CME Group’s FedWatch program, investors are pricing in a 81.7 percent chance of a 25 basis points interest rate hike by December.

On the data front, the Job Opening and Labor Turnover Survey (JOLTs) report came in below expectations. According to the US Labor Department, the number of job openings in August dropped to 6.082 million, down from an initially forecasted 6.125 million.

Ahead in the day, investors will be focusing on Eurozone’s industrial production for August at 09:00 GMT, with a 0.5 percent seen. A speech by ECB President Mario Draghi is due at 14:30 GMT. Traders will be focusing on the release of US September’s producer price index, initial jobless claims as of 12:30 GMT. The Fed will present its budget balance at 18:00 GMT.

FOMC members Brainard and Powell are scheduled to speak at 14:30 GMT.