MARKETS: The Fed’s interest rate hike may not happen – stock markets rise in Asia

The US stock market ended with a clear rise yesterday, and the stock market sentiment continued strong in Asia during the night.

In Japan, the Nikkei index was up by more than 1 percent, and the broader TOPIX index was up by a meager 0.01 percent. The Hang Seng index of the Hong Kong stock exchange was up two percent, and in mainland China the rate of increase was 0.4 percent. Semiconductor-focused stock markets in Taiwan and South Korea were clearly up.

Federal bank of the United States, part of the leadership of the Fed Christopher Waller said yesterday that he was prepared to support keeping interest rates unchanged if inflation continued to move toward the Fed’s 2 percent target. However, Waller added that the hot inflation number would prompt him to consider raising rates. According to him, the next interest rate decision depends heavily on the August inflation data to be published next week.

Waller’s comments lowered interest rate hike expectations. The market now has about a 50 percent probability that the Fed will raise interest rates in a couple of weeks. In previous days, market pricing had indicated a 60-70 percent chance of a rate hike at the Fed’s September rate meeting.

“Waller’s comments are significant, as they may have tipped the balance regarding the Fed’s next interest rate decision. Right now, the focus is on two things: the labor market report and the next inflation data. The Fed’s next decision will likely depend on these,” UBS:n Head of Global Asset Management’s Asia Equity Investment Suresh Tantia commented in an interview with Bloomberg.

The extensive US labor market report for August will be published on Friday at 15:30 Finnish time.

The yen, which had strengthened strongly in the previous days, had weakened against other major currencies on Friday. The yen had weakened by 0.4 percent against the pound and by 0.3 percent against the euro and the dollar.

The Bank of Japan’s next interest rate meeting is later in September. The market has speculated about the probability of future interest rate hikes and awaited possible interventions by the Japanese authorities in the market if the yen had weakened significantly. A September interest rate hike is considered likely, and the market considers a total of three more interest rate hikes by the Bank of Japan this year to be possible.

You got 1.16 dollars for the euro and 156.37 yen for the dollar.

The Euro Stoxx 50 index future was slightly up, anticipating a neutral stock market opening for European stock exchanges.