Asia shares, bonds rally as Powell fuels optimism of end to rate hikes

SYDNEY: Asian shares and bonds extended a global rally on Thursday as a non-committal Federal Reserve chief had markets double down on bets that U.S. interest rates have peaked and cuts are on the way.

Europe was also set for a positive open, with EUROSTOXX 50 futures up 0.7% and FTSE futures rising 0.5%. The Bank of England will meet later in the day, and markets suspect that its tightening cycle is also done and dusted.

S&P 500 futures rose 0.3% and Nasdaq futures advanced 0.4%.

Investors are now awaiting the results from Apple, a bellwether for consumer demand and the tech sector. The Cupertino California-based company is expected to report a 1% decrease in quarterly revenue later in the day.

MSCI’s broadest index of Asia-Pacific shares outside Japan surged 1.6%，the biggest daily jump since late July. Tokyo’s Nikkei gained 1.1%.

China’s blue chips slipped 0.2%, while Hong Kong’s Hang Seng index jumped 0.9%.

Overnight, the Fed held the policy rate steady in its current 5.25%-5.50% range. While Chair Jerome Powell did not rule out another hike, markets judged he was not quite as hawkish as he might have been.

Fed funds futures rallied as markets pared back the risk of a December hike to about 20% and a January move to 25%. Markets have priced in a 70% chance that the tightening is over and rate cuts could amount to 85 basis points next year, beginning as soon as June.

Wall Street and Treasuries jumped. The S&P 500 gained 1% and the Nasdaq Composite surged 1.6%.

The benchmark 10-year Treasury yield eased another 1 basis point to 4.7196%, the lowest in more than two weeks. Overnight, it tumbled 14 basis points, the biggest daily drop since March, also thanks to a Treasury announcement that the government will slow increases in the size of its longer-dated auctions.

“Fed Chair Powell certainly reserved the right to hike rates again, but our takeaway is that the Fed is very likely done with rate hikes,” David Chao, global market strategist, Asia Pacific (ex-Japan) at Invesco, said in a note to clients.

“This certainly gives Asian central banks such as Indonesia and Philippines more wiggle room to hold rates instead of raise them,” said Chao, adding he expects international assets, especially emerging markets, would outperform U.S. assets.

The next big focal point for the market is non-farm payrolls data on Friday, which analysts expect to show the economy added 180,000 jobs in October, slowing from 336,000 increase the previous month. It will come after mixed data showed strong job openings and slower than expected growth in private payrolls.

For currencies, the retreat in Treasury yields pulled down the U.S. dollar modestly, while the improvement in risk sentiment gave a lift to the battered Aussie and kiwi dollars, which rose 0.5% and 0.7%, respectively, to multi-week tops.

“Although the FOMC may not be talking about it today, within a few months, the question will no longer be ‘Will they hike again?’ but ‘When will they cut?’,” said Seema Shah, chief global strategist at Principal Asset Management.

The yen continued to regain ground – up 0.3% to 150.42 per dollar on Thursday. It had hit a one-year low after a Bank of Japan decision to ease its control over the 1% cap on 10-year yields, with the tweak seen insufficient to close the wide interest rate gaps between Japan and other countries.

Oil prices traded higher. Brent crude futures climbed 1.0% to $85.50 a barrel while U.S. West Texas Intermediate futures were at $81.32 a barrel, up 1.1%.

The price of gold was 0.2% higher at $1,985.99 per ounce. – BK