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Asia markets stay composed after Fed’s emergency rate cut

Asian equity futures are drifting higher on Wednesday morning, following the US Federal Reserve’s unexpected rate-cut decision overnight that led the US market to fall sharply.

Japan’s Nikkei 225 climbed 0.5% and the Hang Seng future is poised to open higher. US futures climbed 0.7% this morning.

Therer were a few unusual movements last night; the US 10-year treasury yield fell below 1% for the first time and gold prices surged more than $50 overnight. US equity indices tumbled nearly 3% after the cut, perhaps due to 'selling the fac'’. More importantly, an emergency rate cut – which is used only in a time of crisis - underscored a rapidly heightening economic risk as Covid-19 sweeps the globe.

The dollar index fell for an eighth consecutive day to 97.16, coming to its lowest level seen since end January. The Fed cut propelled a rebound in AUD/USD and NZD/USD, both of which have shown signs of bottoming out from recent lows. Yesterday, the Reserve Bank of Australia lowered its policy rate by 25bps as expected, and the Aussie dollar rebounded on the fact.

Technically, AUD/USD has broken out above its 10-day simple moving average with strong upward momentum. Immediate resistance can be found at the 0.666 area (the 38.2% Fibonacci retracement).

Markets are trying to strike a balance between monetary support carried out by central banks around the globe – Fed, RBA, BoJ, PBoC – and the potential collateral damage brought on by Covid-19. Things might get worse before they get better, as happened in China from the end of January to mid-February.

In Singapore, banks may suffer from the Fed’s rate cut, as their net interest margin (NIM) is likely to be compressed. Three local banks – DBS (-0.57%), OCBC (-0.56%) and UOB (-0.57%) fell moderately this morning.

The real estate sector might benefit from the Fed cut, as lower rates will boost their earnings by lowering the lending costs. Singapore REITs rebounded sharply this morning, led by Mapletree Commercial Trust (+3.75%), CapitaCom Trust (+2.08%) and CapitaMall Trust (+1.70%).

AUD/USD chart