Asian markets rise despite the US Fed’s hawkish rate hike

Stocks across Asian markets surged on Thursday, despite the Federal Reserve raising interest rates for the first time in three years, as officials sounded a more hawkish tone in their fight against surging inflation. Investors were buoyed by a further decline in oil prices, which were driven by hopes of increased supply after Saudi Arabia agreed to restore some capacity from a pipeline that had been closed following drone attacks.

The Federal Reserve's unanimous decision to raise borrowing costs for the first time since 2023, as boss Kevin Warsh emphasized the need to combat inflation that had been "too high" for "too long", provided reassurance to traders. Long-term government bond yields fell as investors reduced their inflation expectations, which are currently above the bank's target of 2 per cent.

The rise in rates was seen as bolstering the credibility of the central bank and giving some reassurance over officials' determination to beat inflation. However, while Wall Street's three main indexes ended the day in the red, Asian traders responded positively to the rate hike. Despite Warsh's hawkish stance, his optimistic outlook on the economy may have been music to many ears.

Still, experts warned that the chances of US policy rates returning to above 5 per cent are still limited, and a catalyst to extend the equity bull market (lower interest rates) looks unlikely in the foreseeable future. The Middle East crisis continues to weigh heavily on sentiment, with oil prices above $100 a barrel, but investors found some cheer in reports that Saudi Arabia is looking to return about half the capacity of its cross-country oil pipeline within days.