As widely expected, the Federal Reserve kept its benchmark interest rate unchanged after May's two-day policy meeting that was concluded on Wednesday (03/05). The US central bank also delivered a rather hawkish policy statement, downplaying weak Q1-2017 economic growth and emphasizing the strength of the US labor market. This implies the Fed is still on track for two more rate hikes in the remainder of 2017.
After the Fed's announcement the Dow Jones Industrial Average gained modestly overnight, ending the day 0.04 percent higher, while the S&P 500 Index and Nasdaq Composite both closed lower. This was attributed (partly) to Apple stock's post-earnings pullback. The US dollar, on the other hand, strengthened after the Fed's hawkish statement.
Futures traders now increasingly point at the rising chances of a June rate hike. However, it is expected that - besides economic data - the Fed will also carefully monitor US President Donald Trump's tax cut plans. If economic data are solid while negotiations cause expectations of a late summer tax cut agreement, then a June interest rate hike is highly likely.
Most Asian and Pacific stocks are declining on Thursday (04/05) after the Fed's hawkish statement and the bleak performance of US stocks overnight. Benchmark indices in China, Hong Kong, India, New Zealand, Taiwan, Australia, Malaysia, Singapore and Vietnam are all in red territory on Thursday morning (04/05). Meanwhile, Japan is closed for the Golden Week holiday and can therefore not be a pillar of support for the direction of other markets in Asia.
Indonesia's benchmark Jakarta Composite Index, however, is bucking the trend having climbed 0.48 percent to 5,674.44 points by 09:40 am local Jakarta time on Thursday (04/05), seemingly going to snap a four-session losing streak after touching an all-time record high last week. Part of the problem for Indonesia was that its stock valuations had become increasingly high.
The US dollar has been strengthening after yesterday's hawkish Fed statement as investors seem to be certain that the Fed will remain on track for more interest rate hikes this year despite weak first quarter US economic data. The Indonesian rupiah exchange rate had depreciated 0.18 percent to IDR 13,332 per US dollar by 09:50 am local Jakarta time on Thursday (Bloomberg Dollar Index).
Looking at commodities, we see crude oil prices sliding on Thursday (04/05) after a smaller-than-expected drop in US inventories. In the preceding session oil had touched its lowest level in more than five weeks.
However, metal prices (with the exception of precious metals) are in the red causing additional negative sentiments on markets in the Asia-Pacific today.