Asian markets fall, gold slips and greenback soars after rate hike

A police officer keeps watch in front of the US Federal Reserve in Washington on Oct 12, 2016.
A police officer keeps watch in front of the US Federal Reserve in Washington on Oct 12, 2016.PHOTO: REUTERS

S'pore interest rates, cost of borrowing up in wake of increase; US$ soars against currencies

Bourses across Asia slid, gold sank to a 10-month low and the greenback surged against most currencies.

The reason was not so much the US Federal Reserve's widely anticipated decision to lift its benchmark interest rate for the first time in a year and only the second time since the 2008 global financial crisis.

Rather, investors were spooked by the Fed's signalling of a faster pace of rate hikes ahead - as many as three hikes next year, when in September it had flagged only two.

The Fed on Wednesday lifted its benchmark cash rate by a quarter point to a range of 0.5 per cent to 0.75 per cent - still historically very low.

As much of global trade and investment are priced in US dollars, this has far-reaching consequences.

 

The Fed move has already pushed up Singapore interest rates and the cost of borrowing.

The three-month Sibor, or Singapore interbank offered rate - used to price home loans - climbed to 0.96301 per cent yesterday from 0.93209 per cent on Wednesday. The three-month SOR, or swap offer rate - a benchmark for commercial loans - jumped to 0.89522 per cent from 0.85107 per cent.

Home owners with variable mortgages should consider refinancing to a fixed-rate package in view of the weak economic outlook and concerns over job security, said Mr Alfred Chia of Sing Capital.

Except for Japan, Asian bourses lost ground, partly on concerns that a massive US stimulus programme could trigger more capital outflows from Asia towards US dollar assets.

A sustained outflow not only makes US goods more expensive in this part of the world, but is also detrimental to local stock markets.

Regional markets, which had enjoyed a robust run-up in recent weeks, are now consolidating. In Singapore, the Straits Times Index slid 0.79 per cent. Hong Kong fell 1.77 per cent, while Shanghai shed 0.73 per cent. Japan, a beneficiary of the strong greenback, rose 0.1 per cent, as a weak yen makes the country's exporters more competitive.

The greenback soared to its highest level against most currencies in nearly 14 years, gaining 3.4 per cent against the Singdollar since the US elections last month. One US dollar could buy S$1.4388 yesterday, compared with S$1.3901 on Nov 8.

Gold sank to its lowest level in more than 10 months to US$1,131.42 an ounce as money was sucked away from commodities and into the greenback.

On Wall Street, stocks opened higher yesterday, with the Dow Jones Industrial Average up 30 points .

Depending on upcoming job and other economic data, the next US rate hike could come in March. Some analysts see the Fed waiting until May or June, by when it is hoped new US President Donald Trump's fiscal plans will be clearer.

"If the US economy gets better, that will have positive spin-off for exports in this region. But this may only be more apparent in the second half of next year and depending on what fiscal policies kick in," CIMB economist Song Seng Wun said.

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A version of this article appeared in the print edition of The Straits Times on December 16, 2016, with the headline 'Fed's hint of extra rate hikes spooks Asian markets'. Print Edition | Subscribe