Asian markets rose on Monday following a record-breaking close on Wall Street after Federal Reserve boss Jerome Powell indicated the central bank would be cautious in winding down its ultra-loose monetary policy and was in no hurry to lift interest rates.
In a closely watched speech on Friday, Powell said the world’s top economy was well on the road to recovery from last year’s pandemic-induced collapse, with millions of jobs recovered and growth at its strongest in decades.
The Fed’s bond-buying programme – and colossal government spending worth trillions of dollars – provided crucial support and helped drive an equity market rally for more than a year.
But traders have for months been debating when the crutch will be removed in order to prevent inflation from spiralling out of control and the economy overheating.
And Powell, in a speech to the Jackson Hole symposium of central bankers, soothed concerns about the bank’s approach, saying “it could be appropriate to start reducing the pace of asset purchases this year”.
But he added that would not be a signal for an increase in borrowing costs to follow soon after, instead taking into account the impact of the Delta variant on the recovery.
“As widely expected, Fed Chair Powell’s Jackson Hole speech did not provide a definitive answer to the… tapering decision,” National Australia Bank’s Rodrigo Catril said.
“But his dovish undertones on his views on inflation as well as the emphasis on decoupling the rate hike decision from… tapering resulted in a risk positive market reaction.”
He added that Friday’s release of jobs data for August will be key, with a strong reading raising the possibility of a start to tapering in September.
“But our sense is that in October the (policy meeting) is likely to have a better sense of the state of the labour market following the end of the unemployment benefit closing in September, kids back at school as well as the impact from Delta infections on the labour market.”
Hurricane hits Gulf
Eli Lee, at Bank of Singapore, said: “Depending on the economic data for August, the Fed could announce a taper as early as its next meeting in September, but our base case scenario is that the Fed will prime the markets again on tapering in September and announce in November that it will begin reducing its asset purchases in December.”
All three main indexes on Wall Street rallied, with the S&P 500 and Nasdaq chalking up new records.
And the positive mood filtered through to Asia, where Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Singapore, Wellington, Taipei, Mumbai, Bangkok and Jakarta were all in positive territory.
Paris and Frankfurt rose in early trade, while London was closed for a holiday.
Oil prices dipped after last week’s gains, though demand optimism remains buoyed as traders bet on the recovery outlook, while they were also eyeing production capacity in the United States with the powerful Hurricane Ida slamming into the Gulf of Mexico.
The storm battered Louisiana and plunged New Orleans into darkness, though it weakened from a Category Four to One as it headed inland.
While the damage to refineries was still to be ascertained, Andy Lipow, president of Lipow Oil Associates in Houston, warned: “For a Category Four, you could be looking at four to six weeks or more of downtime for the refineries.”
Wednesday’s meeting of OPEC and other major producers is also being keenly awaited, with some observers saying the fast-spreading Delta Covid variant could cloud the outlook and force countries to slow their planned output increases.
Key figures around 0810 GMT
Tokyo – Nikkei 225: UP 0.5% at 27,789.29 (close)
Hong Kong – Hang Seng Index: UP 0.5% at 25,539.54 (close)
Shanghai – Composite: UP 0.2% at 3,528.15 (close)
West Texas Intermediate: DOWN 1.0% at $68.08 per barrel
Brent North Sea crude: DOWN 0.4% at $72.44 per barrel
New York – Dow: UP 0.7% at 35,455.80 (close)
London – FTSE 100: Closed for a holiday
• AFP and Jim Pollard