Shares tick higher as Fed hikes rates, dollar jumps with short-term yields

By Stella Qiu

SYDNEY, Sept 17 (Reuters) - Shares edged up in Asia on Thursday as investors bet the Federal Reserve is finally getting the jump on inflation, delivering its first rate hike in more than three years and calming a global bond selloff that had sent long-term yields soaring.

The U.S. dollar hit a seven-week high against its major peers, underpinned by a jump in short-term Treasury yields as markets ramped up wagers that the Fed may have to lift rates again, with a move by December fully priced in. That proved a headwind for commodities, with oil prices giving back ground.

The focus now shifts to the Bank of England, which is widely expected to leave interest rates steady later in the day, but all eyes will be on any hint about if high energy prices could force it to hike in November. The Bank of Japan, by contrast, is all but certain to lift interest rates on Friday.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4% while Japan's Nikkei gained 0.5%. Chinese blue-chips slipped 0.4% and Hong Kong's Hang Seng fell 0.9%.

Nasdaq futures gained 0.6% and S&P 500 futures bounced 0.5%, after small declines on Wall Street. [.N]

As widely expected, the Fed raised interest rates by a quarter point overnight, but the unanimous decision tilted to the hawkish side, with the board signalling one more rate hike this year. Goldman Sachs now expects the Fed to hike rates again in October.

"We think October is the most likely time for the next move because it is most natural to deliver hikes that the FOMC presented today as supporting 'a timelier return' to the 2% target at consecutive meetings," said Goldman analysts in a note.

"Additional hikes are possible but not our base case."

Futures imply there is a 50% chance that the Fed could follow up with a second hike as soon as next month to rein in inflation. A total of three rate rises have been priced in for this tightening cycle.

The Treasury yield curve bear flattened, with short-term maturities taking a hit but long bonds heaving a sigh of relief. Two-year Treasury yields held at 4.7145%, after spiking 6 basis points overnight to the highest since July 2024.

That helped boost the U.S. dollar to a seven-week high against its major peers such as the yen and euro. It was last at 100.33, after surging 0.7% overnight.

The yield on benchmark U.S. 10-year notes paused for breath at 4.9917%, hovering under the key level of 5%, while 30-year bond yields eased 2 bps to 5.3328%, pulling further away from a 19-year high of 5.401%.

"Chair Warsh will be pleased that the breakout of the 10-year yield shows a moderate fall in inflation expectations, which telegraphs a nod of approval from the market to the hike as an inflation containment one," said Padhraic Garvey, regional head of research, Americas, at ING.

"It was still an eloquent performance. But it won't rescue the back end of the curve. We identify 5.25% as a next target for the U.S. 10-year yield."

Commodity markets took a hit. Brent crude futures slipped 0.7% to $105.05 a barrel after falling 2.7% overnight as Saudi Arabia was reportedly offering crude cargoes through Oman, easing some concerns about Middle East supply disruption.[O/R]

Gold, however, showed some resilience, rising 1% to $4,305 an ounce, offsetting a 0.7% fall overnight. [GOL/]

(Editing by Shri Navaratnam)