Fed goes big, yo-yo market

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets.

“Go big and bold,” was the advice to Fed Chairman Jerome Powell and fellow US political observers and even former policymakers, and they didn’t do just that.

The Federal Reserve’s half-percentage-point interest rate cut on Wednesday was a statement of intent that the Fed is prepared to protect the labor market and steer the economy away from anything approaching recession.

Investors loved it, at first. The S&P 500, Dow and gold jumped to new records, the small-cap Russell 200 rose nearly 2% and the dollar fell across the board.

But gains in stocks and gold faded, and the dollar rebounded from a 14-month low to close the US session on the day.

What gives? Perhaps the bond market’s reaction was most prescient. Treasury yields rose along the curve, more so at the longer end, perhaps because of underlying concerns about inflation and easier financial conditions, or because the Fed slightly revised its long-term funds rate forecast federal.

This sends mixed signals for Asian markets on Thursday.

Who says central banks no longer retain the element of surprise? A quarter-point interest rate cut by Bank Indonesia on Wednesday was not on the cards – only three of 33 economists polled by Reuters predicted the move, with the remaining 30 expecting the policy rate to be left at 6, 25%

Perhaps surprisingly, the rupee did not move much and remained close to its strongest levels against the dollar in about a year.

Now that the Fed has taken the first step on its easing path, other central banks in Asia are likely to feel more comfortable easing policy. But not Taiwan, at least not yet.

Taiwan’s central bank is expected to keep its policy interest rate unchanged on Thursday, according to all 32 economists polled in a Reuters poll, and remain on course until the end of next year as it deals with lingering inflation concerns.

The central bank left the benchmark discount rate at 2 percent as expected at its last quarterly meeting in June, after raising it to that level from 1.875 percent at the previous meeting in March.

Investors in Asia also have New Zealand GDP, unemployment figures from Australia and Hong Kong and trade data from Malaysia on the table.

Traders could also adjust positions ahead of Japanese inflation numbers and Friday’s rate decisions from the Bank of Japan and the People’s Bank of China.

The dark cloud of deflation hangs heavily over China, particularly the real estate sector. Previous housing market crashes around the world suggest that China may need a decade to recover from the currently bursting bubble. And that’s if prices actually return to their pre-bubble highs.

The story continues

Here are the key developments that could provide more direction for Asian markets on Thursday:

– Taiwan interest rate decision

– New Zealand GDP (Q2)

– unemployment in Australia (August)

(Reporting by Jamie McGeever)