Fed still expected to cut stimulus, Asian markets mixed

SINGAPORE — Markets in Asia closed mixed yesterday after the minutes from the last United States Federal Reserve policy meeting left unchanged expectations that the central bank would begin to scale back its monetary stimulus as early as next month, but the negative momentum from recent sessions waned following the release of buoyant manufacturing data from both China and the eurozone.

“It looks as if the minutes have done little to push back on market expectations for a Fed tapering,” said Mr Ian Stannard, Head of European Foreign Exchange Strategy at Morgan Stanley.

Among the key Asian stock markets, China’s Shanghai Composite Index shed 0.3 per cent, Hong Kong’s Hang Seng Index rose 0.4 per cent while Japan’s Nikkei-225 lost 0.4 per cent. Singapore’s Straits Times Index fell 0.6 per cent to 3,089.40 in its sixth straight session of losses though ending off its intraday low of 3,054.77. Despite the continued weakness, analysts said the worst was likely over for the local benchmark.

IG Markets strategist Kelly Teoh said: “There shouldn’t be further downside in terms of the velocity that we’ve seen, because all the bad news is out there already.

“Unless we see US Treasury yield going up to 3 per cent — which I don’t think is likely — I don’t think there’s excessive downside in the STI. There could actually be people from the sidelines looking to enter the market to benefit on good valuations.”

Mr Desmond Chua, an analyst at CMC Markets, said: “The impact on the STI will likely be limited (when tapering actually hits), unless of course the reduction amount turns out to be larger than the expected US$15 billion (S$19.2 billion) to US$20 billion … For now, however, it’ll be good to stay clear of cyclical counters, including the banking and commodity counters.”

The much-awaited minutes of the July Federal Open Market Committee (FOMC) meeting shed no new light on when the central bank will cut down on its US$85 billion a month of bond purchases to keep interest rates low. In June, Fed Chairman Ben Bernanke had indicated the stimulus could be cut if economic data continued to be positive, but he avoided setting any target dates.

There were signs that some members of the divided FOMC were comfortable with beginning to taper as soon as the next meeting in the middle of next month. But there were also indications that another camp within the policy-setting group favours waiting until December, or even later.

Still, with Mr Bernanke all but certain to step down as Fed Chairman early next year, most analysts expect the Fed to initiate the tapering process before he leaves office, either at next month’s or the December FOMC. The committee will also meet in October, but Mr Bernanke is not scheduled to address the media then.

With benchmark US Treasury yields continuing to hover at their highest in two years, with the 10-year bond at 2.905 per cent, Asian emerging market currencies continued to plunge. The Indian rupee fell to a fresh record low of 65.52 to the US dollar, while the currencies of Indonesia, Malaysia and Thailand all hit multi-year lows. AGENCIES, WITH ADDITIONAL REPORTING BY WONG WEI HAN