Asian stocks erase early gains after short-lived Fed relief rally

FE Team | Published: June 16, 2022 23:45:04

Most Asian stocks and currencies erased early gains on Thursday, as investors shifted focus towards the possibility of a global recession after briefly cheering a 75 basis point interest rate hike by the US Federal Reserve in a widely expected move, reports Reuters.
Coming out of multi-month lows hit at the start of the week, regional currencies had firmed earlier in the session as US bond yields and the dollar retreated from multi-year highs a day earlier.
However, it failed to keep investor confidence for long, as they went back to weighing impacts of rising inflation and aggressive policy tightening outlook from global central banks.
"I struggle to believe the Fed can effectively tame inflation without triggering a hard landing. And that can already be seen by the fact markets have struggled to hold onto earlier gains," said City Index market analyst Matthew Simpson.
"So what we saw was a minor relief rally, and the reality is sinking in that we're in a period of high inflation and low growth."
The greenback found back some footing in Asia, weighing on the local currencies, with the Taiwan dollar broadly flat ahead of the central bank's policy decision later in the day.
The central bank is expected to again raise its policy rate, according to all economists polled by Reuters, to help fend off inflation now at an almost 10-year high.
"The central bank (of Taiwan) is going to hike today. The question is whether it will follow the Fed's 75 bps hike from the current 1.375 per cent... A hike of 75 bps or even 50 bps could deter investment demand from manufacturers. A 75 bps hike is likely to lead to a jump in TWD against USD," ING analysts wrote in a note.
The Indonesian rupiah reversed course to fall 0.1 per cent.
The country's trade surplus narrowed more than expected in May, as exports grew more slowly than predicted due to a ban on palm oil shipments, data showed on Wednesday.
President Joko Widodo later announced a Cabinet reshuffle, sacking the trade minister and announcing a replacement following controversy over a series of policy reversals on palm oil exports.
The country's shares, however, rose about 1 per cent and were on track for their best session since the last week of May. The South Korean won firmed the most among Asian currencies, rising 0.4 per cent to come off a 19-month low. But the country's finance ministry said the domestic economy will grow at its slowest pace in three years in 2022, as the world faces supply bottlenecks, surging inflation and rapidly rising interest rates.
This led to stocks in Seoul giving away most of their early 2 per cent gains and close 0.2 per cent higher. The Thai baht, however, weakened 0.6 per cent. The country's central bank said on Wednesday it was closely monitoring capital movements and the baht and was ready to take action on any excessive volatility.