Asian shares mixed ahead of expected Fed rate hike

Dec increase almost certain, say analysts; focus now on nominee to replace chair Yellen

Asian shares were mixed yesterday as investors shrugged off a largely expected move by the United States Federal Reserve on Wednesday to keep interest rates unchanged.

With analysts now saying a December rate hike is almost a foregone conclusion, traders have their eyes on fresher developments like President Donald Trump's proposed tax Bill and his reported nominee for Fed chairman, Mr Jerome Powell.

Asian shares enjoyed a morning rally but ended the day on a more muted note although Tokyo added 0.5 per cent to hit a 21-year high.

Other regional bourses declined. The local benchmark Straits Times Index fell 11.11 points or 0.33 per cent to 3,380.5, Hong Kong dropped 0.26 per cent, Shanghai shed 0.37 per cent and Seoul slipped 0.4 per cent.

Given the Fed's optimism about the economic outlook, many analysts believe a December rate hike is almost certain.

Bank of Singapore chief economist Richard Jerram said in a note to clients yesterday: "December is likely to see the fifth rate hike of this cycle. A hint came in the statement that followed the Fed meeting overnight, which was more upbeat than before."

He noted that the Fed described economic activity as rising "at a solid rate", compared with "moderately" before.

The bigger question on investors' minds now is Mr Trump's ambitious tax plans - due to be unveiled overnight by House Republicans - although a delay in the roll-out has caused analysts to speculate about potential trouble ahead.

"The positive assessment reflects recent data releases, such as the initial jobless claims data, which spiked after the hurricanes, but are now back to normal."

The Fed's policy statement acknowledged that core inflation remains soft - below its 2 per cent target - but also noted that petrol prices rose in the aftermath of recent hurricanes, which boosted overall inflation in September.

Rabobank analysts noted: "In other words, the Fed's view on inflation is unchanged so they are still aiming for a December hike.

"Considerable attention was paid to the economic impact of the hurricanes, but the Fed concluded that past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term."

The bigger question on investors' minds now is Mr Trump's ambitious tax plans - due to be unveiled overnight by House Republicans - although a delay in the roll-out has caused analysts to speculate about potential trouble ahead.

US lawmakers have made plans for a measure that will seek up to US$6 trillion (S$8.16 trillion) in tax cuts over 10 years, but they are not likely to spell out in detail how they should be offset.

Meanwhile, US media reported that the White House has notified Fed governor Powell that he will be the nominee replacing Fed chair Janet Yellen.

Mr Dean Baker, the co-director of the Progressive Centre for Economic and Policy Research, told Bloomberg: "He does not have the extent of background and experience as Dr Yellen, which does raise concerns about how he will respond when conditions in the economy change."

A version of this article appeared in the print edition of The Straits Times on November 03, 2017, with the headline 'Asian shares mixed ahead of expected Fed rate hike'. Print Edition | Subscribe