Stocks & Currency: Asian Stocks Slump on Dovish Federal Reserve
Based on the minutes of the Federal Reserve's January policy meeting the US central bank will have a cautious approach when it comes to interest rate hikes. Fed officials agreed that a rate hike should occur fairly soon, perhaps as soon as March 2017, but only in case US jobs and inflation data are in line with expectation. This outlook led to a weakening US dollar as well as stocks as investors had been anticipating a more "hawkish" tone from Fed officials.
US policy makers also stated that they have time raising interest rates as there is little concern about suddenly accelerating inflation. They also pointed at the relatively high degree of uncertainty on issues ranging from Donald Trump administration's economic plans to the impact of a strengthening US dollar. Although chances of a March interest rate hike are still there, chances retreated to 36 percent.
Overnight, US stocks ended mostly lower on the Fed's latest information, although the Dow Jones Industrial Average did record its ninth straight gain and ended 0.2 percent higher to 20,775.60 points. On early Thursday, however, the US dollar somewhat recovered following overnight losses after market participants digested the latest Fed minutes. This also led to steady gold prices at the start on Thursday (23/02).
Today, the dovish Fed is giving rise to a strengthening Japanese yen, hence putting pressure on the Nikkei index (a stronger yen is negative for Japan's export-oriented companies). Other Asian stock markets are following this decline on Thursday (23/02), hence pulling back from a 19-month high on Wednesday.
Oil prices gained in early Asian trade on Thursday after data from the American Petroleum Institute showed a surprise decline in US crude stocks last week.
Indonesia's benchmark Jakarta Composite Index was down 0.08 percent to 5,354.27 points by 09:20 am local Jakarta time on Thursday (23/02), while the Indonesian rupiah had appreciated 0.04 percent to IDR 13,362 per US dollar by the same time (Bloomberg Dollar Index).