Volkswacht Bodensee - Markets mixed as Fed holds rates, China cuts

After 10 straight increases since early 2022, US monetary policymakers stood pat at their latest meeting "to assess additional information and its implications for monetary policy".

However, they signalled more increases were likely to come later in the year as inflation was still double the bank's target rate and the jobs market remained tight.

The move to hold rates at 5.0-5.25 percent came a day after figures showed prices jumped 4.0 percent last month, the slowest pace since March 2021.

The reading added to hopes the Fed can guide the economy to a soft landing and eased worries it could tip into recession.

However, bank boss Jerome Powell said: "Looking ahead, nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to two percent over time."

Edward Moya at OANDA said policymakers were "concerned that wage pressures will remain as the labour market remains very tight".

"With the US banking system remaining resilient and robust job gains, the Fed needs to deliver more tightening and that is why the dot plots (officials' projections) are pricing in two more small rate hikes."

The news got a mixed reception on Wall Street, with the Dow finishing lower but the S&P 500 and Nasdaq rising modestly.

"The skip was expected, but I think markets are left a little confused on the dot plot and Powell's commentary," said Brendan McKenna of Wells Fargo.

"We may need some clarification in the near future, and until we get that, Asia may trade a bit sideways for the time being."

Asia started the day on the front foot, with extra support coming from news that the People's Bank of China had cut a key interest rate as it tries to inject some energy into the world's number two economy.

However, some markets struggled to maintain momentum.

Hong Kong, Shanghai, Tokyo, Sydney, Singapore, Wellington and Taipei all rose, though there were losses in Tokyo, Mumbai, Seoul, Manila, Bangkok and Jakarta.

London, Paris and Frankfurt slipped at the open.

The reduction in China's medium-term lending facility -- the interest for one-year loans to financial institutions -- to 2.65 percent followed a surprise cut in a shorter-term rate earlier in the week.

It also comes as speculation swirls that authorities will unveil a raft of stimulus measures aimed at helping the battered property sector and lifting consumer activity.

A series of lacklustre economic indicators in recent weeks have signalled China's post-Covid recovery is running out of steam, with inflation up only 0.2 percent on-year in May, while factory activity contracted for the second consecutive month.

Retail sales, the main indicator of household consumption, rose 12.7 percent in May, down from 18.4 percent a month earlier, while youth unemployment hit a record high.

"The signal is very important because it's a reversal of policy direction," Dong Chen, at Pictet Wealth Management, told Bloomberg TV.

"Now policymakers have to press the gas pedal a lot harder. In the near term, we need continuous monetary and fiscal support."

Bets on further rate hikes by the Fed lifted the dollar against its major peers, hitting its highest level against the yen since November, putting pressure on the Bank of Japan to shift from its ultra-low rates policy.

Traders are now looking ahead to a policy decision by the European Central Bank later Thursday, with another hike expected. The Bank of England is due to meet next week.

- Key figures around 0715 GMT -

Tokyo - Nikkei 225: DOWN 0.1 percent at 33,485.49 (close)

Hong Kong - Hang Seng Index: UP 1.6 percent at 19,715.24

Shanghai - Composite: UP 0.7 percent at 3,252.98 (close)

London - FTSE 100: DOWN 0.1 percent at 7,592.48

Euro/dollar: DOWN at $1.0812 from $1.0837 on Wednesday

Pound/dollar: DOWN at $1.2641 from $1.2663

Dollar/yen: UP at 141.32 yen from 139.94 yen

Euro/pound: DOWN at 85.50 percent from 85.55 pence

West Texas Intermediate: UP 0.5 percent at $68.63 per barrel

Brent North Sea crude: UP 0.5 percent at $73.57 per barrel

New York - Dow: DOWN 0.7 percent at 33,979.33 (close)

M.Odermatt--BTB