Markets surge as Fed signals it will delay rate hike

SINGAPORE — A wave of relief swept across the globe yesterday, as stock markets surged following the biggest Wall Street gain in four years on signs that the United States Federal Reserve will respond to days of China-led volatility by delaying an expected interest rate rise next month.

“At this moment, the decision to begin the normalisation process at the September Federal Open Market Committee (FOMC) meeting seems less compelling to me than it was a few weeks ago,” New York Federal Reserve president William Dudley said on Wednesday.

“Normalisation could become more compelling by the time of the meeting as we get additional information on how the US economy is performing, and more information on international and financial market developments,” he added.

The Fed has not lifted its key interest rate — now hovering near zero — in more than nine years and is weighing the appropriate timing for its first increase. The policymaking FOMC next meets on Sept 16-17 in Washington, and again in October and December.

A rate hike is still on track this year, after data released yesterday by the US Commerce Department showed the world’s No 1 economy grew much faster than initially thought in the second quarter. Driven by solid domestic demand, gross domestic product expanded at a 3.7 per cent annualised pace, up from the 2.3 percent rate estimated last month, offering assurance that the US is in good shape to weather the growing strains in the world economy.

Kansas City Federal Reserve president Esther George said on CNBC TV yesterday that while market volatility complicates the rate hike picture, the economy is strong enough to withstand a rate increase. Many of the world’s top central bankers gather today at an annual conference in Jackson Hole, Wyoming, and investors will be watching the conference for clues on how the recent market turmoil may be shaking up policy plans.

Wall Street opened firm yesterday, rising 1.4 per cent in the first few minutes after Wednesday’s 4 per cent jump that was the highest since 2011. In late European trading, London’s FTSE Index surged 2.9 per cent, Germany’s DAX soared 3.3 per cent while France’s CAC jumped 3.4 per cent.

Stocks in China, the source of global market turbulence in recent weeks, rallied strongly to end the steepest five-day rout since 1996. The Shanghai Composite Index was flat until the final hour of trading when heavy buying drove the benchmark 5.3 per cent higher to 3,083.59, reclaiming the key 3,000 level amid speculation that the state fund had returned to support the market.

“The bounce on Wall Street and stabilisation in Asia are causing the market to rally back. My short-term indicators are telling me that we hit a bottom in the market earlier this week,” said fund manager Ion-Marc Valahu at Swiss investment firm Clairinvest.

Among the other key bourses in Asia, Hong Kong’s Hang Seng Index rallied 3.6 per cent, Japan’s Nikkei-225 Index jumped 1.1 per cent and Australia’ ASX-200 added 1.2 per cent.

In Singapore, the benchmark Straits Times Index rose 2.5 per cent to close at 2,945.43, with commodity giants Noble and Olam leading gains. In the broad market, gainers outnumbered losers 459 to 61, with 2 billion shares worth S$1.6 billion changing hands.

Noble, the commodities trader facing criticism of its accounting methods, jumped by 14.4 per cent, the most in three weeks, to 51.5 cents. However, the stock is still trading at less than half its price in mid-February, when Iceberg Research posted its first critical report of the company.

Olam surged 13.4 per cent, the most in six years, to S$1.91 before halting trade pending an announcement today. Sources said late yesterday that Japanese trading house Mitsubishi Corp is set to buy at least a 10 per cent stake in Olam in a deal worth at least US$500 million (S$699 million). A representative for Olam declined to comment while Mitsubishi did not answer calls to its office seeking comment outside normal business hours.

The increased appetite for risk also lifted prices of crude oil and other commodities. Benchmark Brent crude rose 3.7 per cent to US$44.72 a barrel late in London, after rising as much as 4.6 per cent to US$45.12. Copper was up about 1.2 per cent at US$5,000 a tonne. The US dollar climbed 0.6 per cent to US$1.1245 against the euro and advanced 0.6 per cent to ¥120.64 in early New York trade.

Markets around the world had plunged earlier in the week as a slump in Shanghai shares fuelled worries over a hard landing in China, the world’s No 2 economy. Some calm returned after Beijing moved to ease policy late on Tuesday, cutting interest rates and lowering the amount of reserves the country’s banks must hold, to support the stuttering economy.

To further support the economy, Beijing yesterday expanded its debt-for-bond swap programme for local governments to 3.2 trillion yuan (S$698.7 billion) from 2 trillion yuan, state news agency Xinhua quoted Finance Minister Lou Jiwei as saying. The programme, meant to ease the financing pressure on China’s heavily indebted local governments, has been steadily expanded from 1 trillion yuan.

China yesterday also relaxed its property investment rules for foreigners, providing a fillip to the real estate market and stumbling economy. Foreign individuals and companies are also now free to buy as many properties as they wished. Previously, foreign residents were allowed to own no more than one property in mainland China and only after they had worked in the country for a year. AGENCIES