IT IS perhaps a sign of our jittery post-Crisis times that a no-change stance from the US Federal Reserve can unleash volatility in the markets.
Asian markets ended mixed on Friday, following the US Federal Reserve's overnight decision to keep interest rates unchanged at historically low levels.
Analysts warned against premature exuberance, saying that while increased prospects of low interest rates should support risk assets, the Fed's inaction highlighted concerns about the global economy.
OCBC currency analyst Emmanel Ng wrote in a note: "The hesitation by the Fed, we think, brings into sharp relief the lacklustre global economic backdrop."
The Singapore Straits Times Index (STI) mirrored see-sawing overnight US equities to gain by as much as 23.96 points in the morning to hit an intraday high of 2,919.77 before tumbling minutes before the close to finish at the day's low of 2,879.59, down 0.56 per cent or 16.22 points.
The Singapore dollar had a similarly choppy day, but in the other direction. It weakened to S$1.4019 per US dollar from S$1.3985 during the day, and then picked up strength to S$1.3906 per US dollar at about 5:15 pm Singapore time.
Other markets in the region fared better. Australia's All Ordinaries rose 0.45 per cent or 23.15 points to close at 5,194.32 as the Aussie dollar strengthened to A$1.3787 per US dollar from A$1.3960 at the start of the day.
The Hang Seng Index in Hong Kong gained 66.2 points or 0.3 per cent to close at 21,920.83.
Prospects of lower interest rates for longer helped gold to rally by 1.65 per cent to US$1,135.86 per ounce.
The Fed's Federal Open Market Committee (FOMC) announced before Asian markets opened on Friday that it would keep its target for short-term rates between zero and 0.25 per cent. The internal median projection among Fed policymakers for interest rates has also moderated, to just 25 basis points for 2015, compared to an expectation in June of 50 basis points for the year.
The Fed's stay-the-course announcement turned up the spotlight on its two remaining meetings for the year.
UBS global economist Paul Donovan said: "The Fed decision leaves us looking at having to go through the whole weary process of angst again this year - Yellen signalled a hike before year end, and (though we expect December), October is still a possibility. We look for one US hike this year and four next."
The Fed cited concerns about the global economy for its dovish stance, raising some ire for introducing what was seen as a new variable into policy decisions.
RHB economist Thomas Lam warned that reliance on global developments could raise the risk of steeper hikes if rate-normalisation is delayed too long.
"The FOMC's increased sensitivity to global developments implies that the list of considerations attached to the liftoff equation is likely to be longer and more convoluted," he wrote.
In the short-term, however, the Fed's message could be positive for emerging markets, OCBC Bank wrote in a note.
"Now that the Fed has explicitly acknowledged the external risks to its growth outlook, should the current China and market-related volatilities persist or escalate, the Fed will find it increasingly difficult to justify a move, and this may provide emerging markets with some temporary relief," the bank stated.
Given the potential of short-term relief but bigger-picture risk of slowing emerging economies, investors may want to take profit when they can, DBS chief investment officer Lim Say Boon wrote.
"Traders who went tactically long on equities late last month should consider taking profit," he suggested. "The technical rebound is likely to run out of fuel soon. The S&P500, which rebounded from a low of 1,867, has had a decent run. It closed at 1,990 overnight. We see heavy resistance in the 2,000-2,100 points region.
"The same applies for those who tactically traded long on Asian currencies, including the Australian dollar. The limits to the relief rallies are not terribly far away."
BlackRock chief investment officer Rick Rieder advised investors to pay closer heed to the pace of rate increases than on when they might start.
"In the near term, investors should be thoughtful about the credit quality of what they own, as the six-year cycle of easy monetary policy continues, for now," Mr Rieder wrote.
On the currency front, ABN Amro noted that even with status quo in September, the Fed is still expected to raise rates in the next few months.
"We are negative about emerging markets currencies (some more than others, depending on their commodity exposure), economic growth outlook, and political situation. Moreover, we are positive on the US dollar, negative on the euro, negative on the yen and negative on commodity currencies.
"Is today's FOMC meeting resulting in a change our view? In short: No," ABN Amro wrote.
The one certainty after Friday's announcement was more uncertainty in the months ahead.
Schroders' fixed-income fund manager Lisa Hornby said: "The number of hours spent analysing today's FOMC rate decision must have set some kind of record."