By Tom Westbrook
SINGAPORE (Reuters) – The dollar rebounded, long-term bond yields rose and Asian shares gained after the U.S. Federal Reserve announced a 50 basis point rate cut and signaled its easing cycle would be measured.
The S&P 500 hit a record high overnight and, although it closed slightly lower, futures were up 0.67% in Asian trading. Nasdaq futures rose 1%. Japan’s Nikkei rose 2.5% and stock markets in Australia and Indonesia hit record highs.
The Fed cut its benchmark policy rate range by 50 basis points to 4.75-5%, the level traders were leaning toward before the decision. The dollar immediately hit a two-and-a-half-year low against sterling, but then retreated sharply.[FRX/]
It rose nearly 1 percent to 143.55 yen early Thursday and was well off the euro’s lows of $1.1097.
Ten-year Treasury yields have risen nearly eight basis points since the previous day to 3.719%, while gold soared to a record high just below $2,600 an ounce before settling back to $2,559. [US/][GOL/]
The Fed’s cut is expected to support spending and the U.S. economy, and encourage other central banks to cut rates.
“It was never going to be 25 or 50, it’s all about the path forward and I think they’ve outlined a view where the economy is still doing pretty well,” said BNZ strategist Jason Wong in Wellington. “This wasn’t a panicked 50 basis point cut.”
Policymakers revised their median rate projections lower from their July outlook, but Fed Chair Jerome Powell stressed flexibility.
“I don’t think anyone should look at this and say, oh, this is the new pace,” Powell told reporters after the massive cut was announced.
“We are recalibrating monetary policy over time to a more neutral level. And we are moving at the pace we believe is appropriate given the evolution of the economy.”
MSCI’s index of Asia-Pacific shares excluding Japan rose 0.3%. Hong Kong and China posted broad gains on the view that Beijing is more likely to implement stimulus now that the Federal Reserve has taken action.
Chinese bond yields fell.
South Korean markets returned from the holiday with a thud after a downbeat note from Morgan Stanley, which halved the target price on SK Hynix, triggered selling in chip stocks. SK Hynix shares fell 8.7% and Samsung shares fell 3.1%.
Oil prices fell, with benchmark Brent crude futures down 0.3% to $73.42 a barrel. [O/R]
In theory, lower US rates across the region give emerging markets room to cut their policy rates to support growth. Bank Indonesia acted a few hours before the Federal Reserve, with a 25 basis point cut on Wednesday.
The Bank of England meets later on Thursday and is expected to keep rates at 5%, especially after inflation figures showed service sector inflation picked up in August. The Bank of Japan will set policy on Friday and is expected to hold its ground but schedule further hikes, perhaps as early as October.
(Editing by Shri Navaratnam and Edwina Gibbs)