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Asia shares rise as Fed holds rates steady while hinting of hikes ahead

TOKYO (AP) – Asian shares were mostly higher on Thursday after the United States (US) Federal Reserve (Fed) held interest rates steady.

Data from China showed consumer and factory activity weakened in May and record-breaking unemployment among young people in cities rose as an economic rebound following the end of anti-virus controls slowed. Consumers, uneasy about possible job losses, have returned to shops and restaurants less quickly than expected.

In Japan, machinery orders for April, released on Thursday, showed the first growth in three months. Trade figures for May showed a deficit for 22 months in a row, as import costs rose with the rising energy and other prices.

Japan’s benchmark Nikkei 225 rose 0.3 per cent to 33,589.50. Australia’s S&P/ASX 200 added 0.3 per cent to 7,180.90. South Korea’s Kospi shed 0.4 per cent to 2,607.60. Hong Kong’s Hang Seng gained 0.7 per cent to 19,543.59, while the Shanghai Composite edged up nearly 0.2 per cent to 3,235.07.

In standing pat on rates, Fed Chair Jerome Powell said the economy will have more time to absorb past hikes, adding, “ideally by taking a little more time, we won’t go well past the level where we need to go.”

That may give the economy and financial markets breathing room, but there was some skepticism.

Currency traders watch computer monitors at a foreign exchange dealing room in Seoul, South Korea on June 15. PHOTO: AP

“It is too early to say that Powell is winning the fight against inflation,” said Ruslan Lienkha, chief of markets at YouHodler, a financial services company.

“The Fed can later decide to continue the rate increase or keep high rates for a significantly long time. Such scenarios are quite possible and might obviously disappoint financial markets in one or a few months.”

Wall Street swung to a mixed finish in anticipation of interest rate hikes later this year, even as it was held steady for the time being.

The S&P 500 finished the day 0.1 per cent higher to 4,372.59 after pinballing between gains and losses following the Fed’s announcement. The Dow Jones Industrial Average dropped 0.7 per cent to 33,979.33, while the Nasdaq composite rose 0.4 per cent to 13,626.48.

The Fed closed its latest policy meeting by saying it would keep rates where they are to give more time to see how its fusillade of hikes over the last 15 months is affecting the economy. It’s trying to slow the economy just enough through rate increases to snuff out high inflation without damaging the job market and creating a recession.

The majority of Fed policy makers indicated Wednesday they still expect its main interest rate to climb at least 0.50 percentage points by the end of the year. The federal funds rate is already at its highest level since 2007, in a range between five per cent and 5.25 per cent.

Inflation has slowed since last summer’s peak, but Powell said there hasn’t been enough improvement in underlying trends to feel comfortable.

In anticipation of future increases to rates, yields in the bond market rose following the Fed’s announcement. The 10-year yield climbed as high as 3.83 per cent from 3.77 per cent just before the Fed’s announcement.

It later receded to 3.79 per cent, compared with 3.82 per cent late on Tuesday. That yield helps set rates for mortgages and other important loans.

The two-year Treasury yield, which moves more on expectations for the Fed, climbed to 4.68 per cent from 4.67 per cent late on Tuesday and was as high as 4.78 per cent.

Stock indexes initially sank following the Fed’s announcement, but they pared their losses, as Powell spoke at a press conference.

Wednesday marked the first time in more than a year the Fed has not hiked rates at a meeting. Inflation is still too high for comfort, causing misery especially for those with lower incomes.

In energy trading, benchmark US crude slipped 13 cents to USD68.14 a barrel in electronic trading on the New York Mercantile Exchange. It gave up USD1.15 on Wednesday to USD68.27 a barrel.

Brent crude, the international standard, lost 15 cents to USD73.05 a barrel.

In currency trading, the US dollar cost 141.03 Japanese yen, up from 140.07 yen. The euro cost USD1.0814, down from USD1.0833.