So What Happened? On Friday, the Japanese Nikkei soared by 0.8% while the Yen remained relatively stable against the U.S. dollar with a marginal in-crease by just 0.2%. Hong Kong’s Hang Seng Index moved upwards by 1.4% and erased its previous two days’ losses. While Australia’s ASX 200 did not manage to erase the previous day’s losses but ended up by 0.4% on the back of increases of energy and commodity prices.
So, what lead to this situation: Asian stock markets mainly posted gains on Friday despite the Fed’s hawkish comments for tighter monetary policy measures. There has to be consideration as to whether U.S. policymakers are honestly paving the way towards an interest rate increase, or whether the hawkish comments made by the Federal Open Market Committee in Wednesday’s minutes was a charade. Arguably, equity markets already absorbed the negative effects of the Fed’s future monetary policy tightening over the following months and that could explain their reaction on the Fed’s data last week. Nevertheless, that can easily change depending on the number of times the interest rate will be increased during the remainder of the year, and also depending on whether financial conditions will allow for that to happen.
So, What’s next: The decision to raise interest rates always depends on the U.S. employment market and inflation levels. But it might also be in the hands of UK’s citizens who will vote in June whether they wish to exit the European Union. So a rate hike in June is not expected by some because even if the economy moves in favour of it, there is also the Brexit that could upset the markets.
Also, note that Friday May 27th Fed Chair Janet Yellen speaks and investors will be listening closely to further hints of an interest rate hike in June.
