U.S. Fed spooked Asian markets with rate hike.
Friday, February 19, 2010. 9:15 am.
Five weeks ago, in mid-January, China spooked markets by announcing it was raising its interbank interest rate, and the amount of cash banks must hold in their reserves.
That announcement shocked global markets into a sharp three-day sell-off that was then extended into a three-week correction.
After the close yesterday, the U.S. Fed announced it is hiking the Discount Rate, the rate banks pay to borrow at its Discount ‘Window’ by 0.25% to 0.75%.
The Fed’s announcement had the same reaction in Asian stock markets last night, with Hong Kong plunging 528 points, 2.6%, and Japan down 212 points, or 2.1%, and had Dow futures down close to 100 points.
But European markets have recovered from the surprise, as have Dow futures.
Yesterday in the U.S. Stock Market.
The market traded mostly sideways all day until mid-afternoon, and then launched into a two hour rally that closed the market up.
It was interesting that both intraday MACD and the market’s internal strength as measured by its intraday Relative Strength Index (RSI), moved in the opposite direction, not confirming the late day rally.
Yesterday’s intraday chart:
The Dow closed up 83 points, 0.8%. The S&P 500 closed up 0.6%. The NYSE Composite closed up 0.6%. The Nasdaq closed up 0.7%. The Russell 2000 closed up 0.7%. The DJ Transportation Avg. closed down 0.1%.
Asian markets were down sharply last night.
The DJ Asia-Pacific Index closed down 1.9%.
China, Taiwan, and Vietnam markets remain closed for the rest of the week for extended Lunar New Year holidays.
Among individual countries that were open:
Australia closed down 0.4%. Hong Kong closed down 2.6%. Japan closed down 2.0%. India closed down 0.9%. Singapore closed down 0.5%. South Korea closed down 1.7%.
If you’d like to see a three-month chart of these indexes and others, click here, and then click on any of the markets in the list at the left side of the page it takes you to.
Markets this morning.
European markets are well off earlier lows, now positive on average of about 0.2%.
Oil is down $.31 a barrel at $78.75 at the moment.
Gold is down $5.40 an ounce at $1,113, although still up $20, or 1.8%, for the week so far.
The U.S. dollar is up in reaction to the Fed’s rate hike.
SUBSCRIBERS: The new issue of the newsletter is on your website from Wednesday evening, and an interim hotline update from last evening.
Markets in the U.S.
In the U.S., this holiday-shortened week has been an average week for potential market-moving economic reports. To see the full schedule of this week’s reports click here, and look at the left side of the page it takes you to.
Yesterday’s reports were negatives, that the Producer Price Index rose 1.4% in January, and that new unemployment claims jumped an unexpected 31,000 last week.
This morning the Consumer Price Index was reported as having risen only 0.2% in January, better than expected.
The Fed’s surprise rate hike announcement had the Dow futures down as much 90 points overnight. But they have recovered completely this morning as the hike is being dismissed as unimportant and not another sign that the Fed has begun to remove the punchbowl.
Our pre-open indicators are now only fractionally negative, pointing to the Dow being down 5 points or so in the early going, not meaningful to market direction.
Stock Market Patterns.
There is no weekly pattern for this week.
The daily pattern is for the day after the Presidents Day holiday to be a down day (down 4 out of the last 5 years), but it certainly was not Tuesday, and for today, the day of this month’s options expirations, to be down (down 7 of the last 10 years).
Interesting Charts of the Morning.
It’s interesting that a number of major markets in Asia had reached the potential overhead resistance at their 21-day moving averages, and although closing fractionally above it were obviously in the vicinity of that resistance when they plunged last night in reaction to the U.S. Fed’s rate hike.
The major U.S. indexes reached the same potential resistance level and have closed above the m.a. to a somewhat greater degree, and have recovered half of their correction.
Please scroll down to see other recent ‘Interesting Charts of the Morning’ and commentary.
To read my newspaper column of last weekend ‘Uncertainty Brings Market Volatility!’ click here! It will be replaced with this weekend’s column later today.
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