Asian stocks gain after US Federal Reserve raises interest rates

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Stocks in Asia were broadly higher on Thursday in the wake of a muted reaction from Wall Street to the US Federal Reserve raising its benchmark interest rate to the highest level in 22 years.

Hong Kong’s benchmark Hang Seng index led the region higher with a rise of 1.3 per cent, while the CSI 300 index of Shanghai- and Shenzhen-listed stocks rose 0.5 per cent and Australia’s S&P/ASX 200 climbed 0.8 per cent.

The gains in Asia came after the US central bank raised the federal funds rate by 0.25 percentage points to a target range of 5.25-5.5 per cent. That move reflected a return to raising rates after the Fed held them steady in June. Investor expectations have since grown that July’s tightening will be the last of this year.

In a statement following the decision, the Federal Open Market Committee said US inflation remained “elevated”, jobs gains had been “robust” in recent months and economic activity was growing “at a moderate pace”.

Fed chair Jay Powell later told reporters it was “certainly possible” the central bank could raise rates again in September but added it would be “making careful assessments” of incoming economic data.

The S&P 500, which had swung between gains and losses earlier in the day, closed flat following Powell’s remarks, while the Nasdaq Composite edged down 0.1 per cent.

Kerry Craig, global market strategist at JPMorgan Asset Management, said the Fed wanted to keep its options open, as there were two more inflation and jobs reports before the next meeting.

But he added: “This rate hike should mark the last in this cycle. Unless the economic outlook deteriorates sharply, any view on rate cuts should be firmly pushed into 2024.”

In currency markets, Japan’s yen rose 0.5 per cent to 139.61 per dollar ahead of the Bank of Japan’s interest rate announcement on Friday. The currency has strengthened 3.4 per cent against the greenback this month on bets from currency and bond traders that the BoJ could soon begin to pivot away from its ultra-loose monetary policy.

“More and more market participants are anticipating policy revisions,” said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust. “So if the BoJ decides to maintain the status quo as most expect, the yen should weaken against the dollar.”

Futures markets tipped the S&P 500 to gain 0.2 per cent when trading begins on Wall Street later in the day, while the FTSE 100 in London was set to rise 0.3 per cent.