Asian shares slip on rate hike fear

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Copy of Copy of IOL pic jan21 asian markets yen Associated Press

Hong Kong - Asian markets slipped on Thursday after the head of the US Federal Reserve hinted that the central bank could hike interest rates earlier than expected.

The comments from Janet Yellen followed an expected third successive cut in the Fed's quantitative easing (QE) stimulus programme, and took markets by surprise, boosting the dollar and sending Wall Street tumbling.

Tokyo fell 0.62 percent, Hong Kong lost 0.56 percent, Sydney eased 0.68 percent and Seoul shed 0.85 percent, but Shanghai was 0.36 percent higher.

The Fed said after a two-day policy meeting on Wednesday it would lop a further $10 billion a month off its bond-buying scheme, saying the economy was picking up and a recent spate of soft data was caused by severe winter weather.

It also said it would do away with its target of 6.5 percent unemployment and 2.5 percent inflation before weighing an interest rate increase from the current record lows.

While that was expected, investors were rattled when Yellen, the bank's new chair, said at a news conference that the timeframe for a rate hike could be “on the order of around six months” after the stimulus ends.

With the present rate of reduction likely to see QE tapered off by the end of the year, that means rates could go up in the first half of 2015.

Michael James, managing director of equity trading at Wedbush Securities, said the timeframe suggested the shift from an era of extremely low rates would come “sooner than the market had been expecting”.

DOLLAR RALLIED

The remarks sent US stocks lower - the Dow fell 0.70 percent, the S&P 500 lost 0.61 percent and the Nasdaq shed 0.59 percent -

while the dollar rallied.

There are also fears for emerging markets as higher borrowing costs could see foreigners repatriating their money back the the United States. QE has been credited with fuelling a boom in developing nations as traders pumped cheaper cash into them looking for better returns on their investments.

On Thursday, Taipei was 0.94 percent lower, Jakarta fell 1.04 percent and Manila was down 0.75 percent.

In New York, the greenback jumped to 102.32 yen from 101.51 yen in Tokyo earlier Wednesday. On Thursday morning in Asia, the US unit was trading at 102.46 yen.

The euro sank, sitting at $1.3822 compared with $1.3827 in New York and $1.3920 Wednesday in Tokyo.

The European single currency also fetched 141.61 yen against 141.53 yen.

On oil markets, New York's main contract, West Texas Intermediate for April delivery, rose 11 cents to $100.48, while Brent North Sea crude for May was up 15 cents at $106.00.

Gold fetched $1,330.40 an ounce at 0230 GMT compared with $1,346.53 late Wednesday.

AFP



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