Shares tick higher as Fed hikes rates, dollar jumps with short-term yields

Shares rose in Asia on September 17 following the US Federal Reserve's first interest rate hike in over three years, alleviating a global bond selloff that caused long-term yields to surge. The US dollar reached a seven-week peak against its major counterparts, driven by a rise in short-term Treasury yields and market expectations of another potential rate increase from the Fed, possibly by December.

This development negatively impacted commodities, particularly oil prices, which retreated. The Bank of England was predicted to maintain interest rates, whereas the Bank of Japan was expected to raise them on September 18. MSCI's Asia-Pacific share index outside Japan increased by 0.4%, while Japan's Nikkei climbed 0.5%. In contrast, Chinese blue-chips declined by 0.4%, and Hong Kong's Hang Seng fell by 0.9%.

Nasdaq futures climbed 0.6%, and S&P 500 futures rose 0.5%, following modest declines on Wall Street. The Fed had unanimously decided to raise rates by 0.25%, signaling a hawkish stance and indicating another increase in 2026. Goldman Sachs anticipates another rate hike in October. Analysts believe the most probable time for the next Fed hike is October, with a 50% chance of a second hike in October to curb inflation.

Three rate increases are anticipated in this tightening cycle. The Treasury yield curve narrowed, with short-term maturities suffering while long bonds benefited. Two-year Treasury yields stayed at 4.71%, up 6 basis points from the previous day to the highest since July 2024, strengthening the US dollar to a seven-week high. The 10-year bond yield paused at 4.99%, near the 5% level, and 30-year bond yields slipped two basis points to 5.33%, moving away from a 19-year high of 5.4%.

Market experts view the Fed's move positively, but they still see room for improvement in the long end of the curve, anticipating the US 10-year yield to reach around 5.25%. Commodity markets faced a setback; Brent crude futures dropped 0.7% to $105.05 per barrel after a 2.7% decline overnight due to Saudi Arabia reportedly offering crude shipments through Oman, easing some Middle East supply disruption worries. Gold showed some resilience, increasing 1% to $4,305 an ounce despite a 0.7% fall overnight.