Kristian Rouz – As the US Fed is expected to outline a plan and timescale for the first increase in the US interest rate in ten years, equities worldwide expanded gains on Wednesday and the dollar was flat.
The Fed is preparing for its first rate hike since 2006, expected in June and aimed at preventing possible bubbles from emerging in the hottest sectors of the nation’s economy, which are energy, chemicals and finance. However, low US inflation may cause delays in further monetary tightening.
In Asia-Pacific, shares rallied as investors are optimistic of growth prospects in the region’s biggest economies. In Tokyo, the Nikkei 225 Index added 0.6% hitting a new 15-year high as economic expansion is poised to accelerate and Japanese shareholders have recently been receiving larger returns caused by the nation’s exporters’ bigger revenues due to a weaker yen. A result of the Bank of Japan (BoJ) bond-buying.
Mainland China’s markets were expanding for a sixth day straight. Investors were encouraged by Beijing’s pledges to introduce a full-scale monetary easing program, which in this particular case will bring immense volumes of liquidity into the financial markets, promising huge earnings for investors and traders alike. The CSI 300 Index of the biggest enterprises listed in both Shanghai and Shenzhen rose 2.4%. MSCI APEX sans Japan Index rose 1.9%
However, a concerning signal came from China also, as new home prices collapsed on the mainland amidst the lack of effective demand.
In the UK, unemployment fell to its 6-year low. Today’s statement from Bank of England read the economic strength of the UK and solid budget suggest the British pound might strengthen against other major currencies. That said, the UK inflation is very unlikely to increase, meaning overall economic growth is likely to remain low. Inflation has been below the target 2% for over a year as cheaper oil and imports prevented increases in consumer prices.
The pound was down 0.5% against the dollar to $1.4679. The BOE said that over the next three years the interest rates will increase rather than decrease, meaning that the UK will pursue similar monetary policies to those across the Atlantic. That said, London must be willing to isolate itself from international trade, as a strengthening pound would lessen exports and cheaper imports.
In commodities, Brent crude fell to $53/bbl after US crude stocks rose to a new record high. Nonetheless, as the dollar was flat on the uncertainty of the Fed meeting outcome, oil depreciated less than it actually could. A cheaper oil also ended a rally of the Russian ruble, which was the best-performing currency last month as oil had been stable at near or above $60/bbl.
In US, the WTI crude fell to $42.54/bbl amidst the oversupply and lack of effective demand for oil. Volume of crude oil in storage rose by 10.5 mln bbl to 450 mln this week as indicated by the data released Wednesday. Analysts had expected an increase of only 3.8 mln bbl. No wonder the oil prices went down.
Now the price of oil is also dependent on the Fed’s decision on the rate hike. If the regulator decides to wait with for further monetary tightening, the dollar will weaker for a short period of time, allowing a slight increase in oil prices. However, this is not a very likely scenario.
