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|29 November, 2018

Thursday outlook: Fed Chair's comments boost interest in riskier assets

Fed Chair’s comments boost emerging market equities, as fears of faster pace of rate hikes in 2019 eased. Saudi Arabia’s index rose on Wednesday on the back of a rise in oil prices. More commentary on oil prices, currencies and precious metals.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 24, 2018.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 24, 2018.

REUTERS/Brendan McDermid
  • Asian shares rise on dovish Fed comments
  • Saudi Arabia’s index gained 0.8 percent
  • Oil prices strengthen ahead of OPEC and G20 meetings
  • Dollar, gold retreat

The United States’ Federal Reserve chairman, Jerome Powell, hinted overnight at implementing fewer rate hikes, noting that the policy rate, at 2-2.25 percent, is now “just below” the broad range of estimates of neutral, which in September was 2.5-3.5 percent.

These comments were significantly different from October’s comments, as Powell said at the time that rates were a “long way from neutral at this point”.

Global markets

The Fed’s dovish view led investors into riskier assets like equities, as Powell's comments eased fears of a faster pace of rate hikes in 2019.

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Asian shares tracked early on Thursday a rise on Wall Street overnight.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8 percent.

The Dow Jones Industrial Average, meanwhile, rallied 2.5 percent on Wednesday and the Nasdaq index surged nearly 3 percent.

“Equities gained as Powell hinted of implementing fewer rate hikes when the economy is still doing well,” Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo, told Reuters.

Middle East markets

A rebound in oil prices at the end of Tuesday’s session supported equity markets, with the Saudi market closing higher on Wednesday as the petrochemical sector was boosted.

Saudi Arabia’s index rose 0.8 percent, with top petrochemical producer Saudi Basic Industries rising 1.4 percent.

Dubai’s index fell 0.5 percent as Union Properties dropped 5.4 percent to a 34-month low and Damac Properties lost 3.5 percent.

Abu Dhabi's index fell 1.6 percent, as it dropped late in the session on the back of a 0.38  percent decline in the shares of First Abu Dhabi Bank and a 0.18 percent drop in Abu Dhabi Commercial Bank’s shares.

Egypt's blue-chip index added 0.7 percent with Telecom Egypt rising 5.8 percent and Abu Qir Fertilizers and Chemical Industries climbing 2.9 percent.

Qatar’s index edged 0.3 percent lower, Kuwait’s index edged 0.1 percent higher, while Bahrain’s index gained 0.3 percent and Oman’s index gained 0.2 percent.

Oil prices

Oil prices gained early on Thursday ahead of next week’s Organization of the Petroleum Exporting Countries (OPEC) meeting and this week’s G20 meeting.

U.S. crude futures rose 38 cents, or 0.8 percent, to $50.67 per barrel by 0338 GMT.

International benchmark Brent crude rose 27 cents, or 0.5 percent, to $59.03 a barrel.

“We have seen huge increases in supply and the demand picture is in question. However, we might see some movement on global trade issues at the G20 meeting which starts on Friday,” Michael McCarthy, chief strategist at CMC Markets and Stockbroking, told Reuters.

“I think we are seeing some positioning ahead of those potential demand-positive events.”

Currencies

The dollar dropped on Thursday on comments by the Fed.

The dollar index, which measures the greenback against a basket of six major currencies, traded steady at 96.84 in early Asian trade. The index lost 0.54 percent on Wednesday, its steepest percentage decline since Nov 1.

“Powell’s comments were read as too hawkish back in October...to some extent his overnight comments have neutralised that,” Rodrigo Catril, senior currency strategist at NAB, told Reuters.

Precious metals

Gold prices edged marginally lower on Thursday, after rising in the previous session.

U.S. gold futures were down 0.2 percent at $1,221.6 per ounce.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

(Gerard.aoun@refinitiv.com)


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