Asia: Stocks mixed as Fed minutes show indecision over interest rate hike

Asia stocks were mixed on Thursday as the minutes from the Federal Reserve’s last meeting showed policymakers were divided over the timing of the next interest rate hike.

At the close Japan’s Nikkei 225 fell 1.55% to 16,486.01 points, the Hong Kong Hang Seng index rose 0.98% to 23,023.16 points and the Shanghai Composite fell 0.17% 3,104.11 points.

The minutes of the Fed's July meeting revealed that some policymakers believed the US economic outlook and labour market were strong enough to “warrant taking another step”. Although others believed more economic data was needed. The Fed said it would "leave their policy options open" and that any slowdown in employment would provide a reason to avoid monetary tightening.

“Judging from the overall tone of the minutes it would appear the reality is that a strong US dollar, combined with weakening inflation gauges appears to be preventing the Fed from pulling the trigger,” said Michael Hewson, chief market analyst at CMC Markets.

“Putting that altogether and you have a perfect recipe for policy paralysis and indecision, which is a far cry from the beginning of this year when four rate hikes for 2016 appeared to be a view the Fed appeared keen to encourage.”

The dollar fell 0.21% against the Japanese yen, 0.05% against the yuan and was flat versus the Hong Kong dollar.

Meanwhile, investors continued to digest news that China has approved a trading link between Hong Kong and Shenzhen stock markets, which would allow global investors to buy Shenzhen equities.

The Shenzhen Connect is expected to go live by the end of the year. It was meant to be launched more than a year ago but it was postponed due to market volatility.

In economic data, China house price growth was flat in July, adding to worries that one of the economy’s key growth drivers is losing momentum.

Average new home prices in China's 70 major cities rose 0.8% in July, the same pace as in June, marking the slowest rate of growth since April. However, on the year prices edged up 7.9% in July compared to a 7.3% year-on-year increase in June.

In Japan, exports fell in July by an annualised 14%, in line with analysts' estimates but at the fastest rate of decline since October 2009. The drop in exports was driven to lower shipments of cars other US, ships to Central America and steel to Italy.

The yen rose toward a seven-year high against the dollar, prompting an emergency meeting between the Finance Ministry, the Bank of Japan and the financial regulator.

Japan's vice finance minister for international affairs, Masatsugu Asakawa, reiterated a veiled threat to intervene in response to speculative moves. However, traders say intervention is unlikely as such a move would be considered a competitive valuation, which the Group of Seven looks down upon.

"We are constantly watching for speculative moves and will respond with the necessary steps if needed," the minister said.

On the commodities front, oil prices recovered on a weaker dollar and after data from the Energy Information Agency on Wednesday showed a bigger-than-expected fall in weekly US crude inventories. Brent crude rose 0.10% to $49.90 per barrel and West Texas Intermediate increased 0.78% to $47.16 per barrel at 0937 BST.

Copper also cut some of its losses from earlier in the week as the dollar fell against major currencies.