BEIJING, China – Global stocks were mostly higher Thursday after investors took the U.S. Federal Reserve’s decision to trim its stimulus as a vote of confidence the American economy is strengthening.
Oil slipped to under $98 per barrel.
Tokyo’s Nikkei 225 index for the region’s biggest market gained 1.7 per cent to 15,859.22 while Sydney’s S&P ASX 200 added 2.1 per cent to 5,202.20. Taiwan, New Zealand and Jakarta also rose.
In Europe, France’s CAC 40 gained 1.1 per cent to 4,156.33 and Germany’s DAX index rose 1 per cent to 9,276.33.
China’s benchmark Shanghai Composite Index shed 0.9 per cent to 2,127.79 as a rise in money market interest rates pushed up trading costs and raised fears of an economic slowdown. Hong Kong and India also fell.
The Fed’s decision reassured investors who had been jittery about a possible reduction in its bond-buying that has helped to support stock prices.
“Growth outlook perceptions have improved because of the Fed’s confidence in the economy,” said economist Dariusz Kowalczyk of Credit Agricole CIB. “Equities in the U.S. are trading very well, and the reaction is being followed by other equity markets in Asia.”
The impact was expected to ripple through the global economy, possibly affecting exchange rates and prompting other central banks to alter policy.
Hong Kong’s Hang Seng declined 0.2 per cent to 23,094.74 after analysts warned the Fed’s change meant banks there might see an outflow of deposits. The territory’s chief central banker warned of possible “market volatility” and said institutions have been warned to avoid excessive lending.
The Fed tempered its pullback by indicating it will keep interest rates close to zero for longer than previously expected.
Starting in January, it will reduce its bond-buying program to $75 billion a month from $85 billion. The reductions, or tapering, will be the first step toward winding down a program that has been in place since the 2008 financial crisis.
That “token taper” leaves the Fed free “test the waters” and adjust its approach if needed, said Stan Shamu, a strategist for Australia’s IG Markets.
“Solid economic improvement for the U.S. will help the global recovery along and ultimately company earnings,” said Shamu in a report.
Taiwan’s Taiex gained 0.7 per cent to 8,407.40 and New Zealand was up 0.6 per cent at 5,064.45. Seoul was flat at 1,975.65.
In China, funding costs overshadowed the U.S. news. Money market rates have risen to an unusually high 8 per cent, sparking fears China might see a repeat of June’s credit crunch, with repercussions for economic growth.
Futures for the Dow Jones industrial average and broader S&P index were off 0.2 per cent in pre-market trading on the Chicago Mercantile Exchange.
By purchasing bonds and holding down long-term interest rates, the Fed has encouraged borrowing and hiring. But all that buying made bonds more expensive than stocks so investors shifted money into equity markets.
Some investors worried less stimulus might dent U.S. demand, hurting Asian exporters.
At the same time, governments of developing countries complained the Fed’s effort to stimulate activity by forcing down commercial lending rates was causing money to flood into their economies in search of higher returns. That pushed up their currencies, making exports more expensive and less competitive abroad.
Asian central banks responded by trying to hold down their currencies, especially after a decline in Japan’s yen gave Japanese exporters a price advantage over their own competitors.
Asian central banks are unlikely to follow the Fed immediately because they will look to global growth trends, said Kowalczyk. He said any rate hikes will be carried out by governments that depend on capital inflows to support growth and want to prevent a reversal.
“India is expected to raise rates, and some thought Indonesia might do the same,” he said.
Banks in Hong Kong and Singapore might see an outflow of deposits, Barclays said in a report.
In currency markets, the dollar declined to 103.935 yen from Wednesday’s 104.127 yen. The euro declined to $1.3660 from Wednesday’s $1.3686.
U.S. crude for January delivery shed 8 cents to $97.98 a barrel in electronic trading on the New York Mercantile Exchange. The contract had gained 59 cents on Wednesday to settle at $98.06 on news of falling U.S. supplies.