Fed Rate Hike Implemented, Asia-Pacific Stock Markets Strengthen, Topix Index Rises 1%, Bond Market Under Pressure, Gold and Silver Rebound

The Federal Reserve has raised interest rates for the first time in three years, prompting global financial markets to reprice accordingly. Australian and New Zealand government bonds weakened in early Asian trading, adjusting in line with the overnight performance of US Treasuries. Overall, Asia-Pacific equities edged higher. Gold rebounded, recovering losses from the previous day.

The Federal Open Market Committee voted unanimously by 12-0 on Wednesday to raise the benchmark interest rate by 25 basis points to a range of 3.75% to 4%. The interest rate dot plot indicates that another hike is likely within the year, with money markets currently pricing in about a 50% chance of further action in October.

US stock index futures stabilized after hours, providing support for sentiment in Asia-Pacific markets. S&P 500 futures rose 0.5%, Nasdaq 100 futures gained 0.4%, and Dow Jones futures edged up by 72 points.

Major Asia-Pacific markets followed suit and moved higher. Japan’s TOPIX advanced 0.8%, while the Nikkei 225 initially surged 0.9% at the open before retreating to a 0.18% gain. Australia’s S&P/ASX 200 inched up around 0.3%. South Korea's main indices opened higher before retreating as well.

International gold prices rebounded by over 1% during the Asia-Pacific session on Thursday after falling a combined 2% in the previous three trading days, breaking above the $4,300 mark.

Against the backdrop of marginal tightening in global monetary policy, Asia-Pacific equities became a safe haven for capital in Thursday’s early trading. Japan’s Nikkei 225 climbed 0.87% after the open, with the TOPIX rising to 0.9%.

South Korea’s KOSPI performed strongly, opening up 1% before retreating to a 0.6% gain, while the small-cap Kosdaq index rose 0.57%. Australia’s S&P/ASX 200 edged up 0.16%.

Optimism in Asia-Pacific markets stands in stark contrast to the gloomy performance on Wall Street overnight. During regular trading hours on Wednesday, US equities were dragged down by the financial services sector. The Dow Jones Industrial Average plunged over 630 points, a decline of 1.2%, and the S&P 500 fell by 0.5%.

However, during the Asian session, US stock index futures quickly recouped some of their losses. S&P 500 futures rose about 0.2% to 0.5%, Nasdaq 100 futures advanced 0.4%, and Dow futures inched up 0.1%, highlighting a market correction after digesting the impact of the rate hike.

Following the Federal Reserve's rate hike, short-term bond markets globally were the first to come under pressure.

In early Asian trading on Thursday, Australian and New Zealand government bonds weakened, tracking US Treasuries. The yield on Australia's 10-year government bond slipped 2 basis points to 5.33%, while the US 10-year Treasury yield fell 3 basis points to 4.99%.

Whether this rate hike signals the start of a new round of sustained tightening remains an open question for the market.

Laffer Tengler Investments Fixed Income Head Byron Anderson believes the Federal Reserve's latest move is less about starting a new tightening cycle and more about stabilizing the bond market. He wrote:

The Fed had no choice—either hike interest rates or face a much larger bond market sell-off. The 12-0 vote underscores that the Fed’s attempt is to calm the bond market, not to announce the start of a rate hike cycle.

Janus Henderson Investors’ Portfolio Manager Daniel Siluk focused on changes in the policy statement’s wording. He said:

The committee has removed references to supply shock-driven inflation, signaling that policymakers are increasingly focused on broader, more persistent inflationary pressures, rather than viewing recent price gains as mainly temporary or externally driven.

Northlight Asset Management CIO Chris Zaccarelli pointed out that historically, when the Fed starts raising rates, they tend to do so multiple times. Chris Zaccarelli noted:

But whether the pattern will be consecutive hikes or intermittent moves remains unclear at this point.

TruStage Chief Economist Steve Rick also adopted a cautious attitude. He noted that the ongoing Middle East conflict could continue to drive oil prices higher, keeping inflation elevated. However, there are lags in monetary policy transmission, and further hikes would place greater pressure on consumers and businesses. He said:

The Federal Reserve should allow time for this rate hike to take effect before assessing whether further tightening is necessary.

In the commodities market, crude oil prices have pulled back after a recent strong rebound, mainly supported by improved supply-side expectations. Brent crude saw a slight rebound, quoted at $105.84.

According to reports, Saudi Arabia is seeking to restore about half the throughput capacity of its east-west oil pipeline, which was hit by a drone attack, within days and expects to fully restore operations in around six weeks.

Meanwhile, uncertainties remain around the Iran situation. According to the Islamic Republic News Agency, Iran declared on Wednesday it would "fight to the last drop of blood," and regional tensions are unlikely to fully subside in the short term.

The US Dollar Index remained near the week’s high around the 100 mark. The yen rebounded marginally after three straight days of losses, last quoted at 155.97 yen per US dollar, up about 0.2%.

As for gold, international prices rebounded 0.3% in early trading, approaching the $4,300 mark and recovering overnight losses.

It is worth noting, however, that the market has interpreted the Federal Reserve’s guidance as hawkish. US Treasury yields fell across the curve, while the dollar strengthened. Since gold itself does not yield interest, rising rates typically weigh negatively on gold.

Silver also rallied sharply, up nearly 1.3% to $63.76 per ounce.