Asia stocks hit 2-week high as Fed talk turns dovish

SINGAPORE: Asia’s stock markets rose on Wednesday, helped by stimulus hopes in China and strong earnings in South Korea, while the dollar beat a retreat as a dovish shift in tone from Federal Reserve officials had traders paring U.S. interest rate expectations.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.5% to head for its best session in 2-1/2 months. South Korea’s Kospi was up 2.4% and eying its best day since January as chip and battery earnings impressed.

The Australian dollar made a week high on the greenback, sterling a three-week peak and the kiwi a two-month top, though moves were wobbly and small while traders waited on U.S. producer prices later in the day and Thursday’s CPI data.

Several Fed official have noted that recent rises in longer-term yields may help do their inflation-fighting work.

Atlanta Fed President Raphael Bostic was applauded when he told a room full of bankers in Nashville on Tuesday: “I actually don’t think we need to increase rates anymore.”

Bond markets were stable through the Asia session, with benchmark 10-year Treasury yields at 4.65% – some 24 basis points below Friday’s 16-year peak. Thirty-year yields, which poked above 5% last week fell 2 bps to 4.81%.

“All other things being equal, higher back end yields now mean less Fed tightening,” said Spectra Markets’ Brent Donnelly.

“The failure of 30-year yields to hold above 5% … is another sign that peak fixed income (volatility) and probably peak yields have been reached for now,” he said.

“I continue to think stocks go higher into year-end as they benefit from stabilisation in fixed income, oversold conditions and positive seasonality.”

A Bloomberg report on China preparing stimulus to help its economy also supported the mood, especially in Hong Kong where a broad rally lifted the Hang Seng above 18,000 for the first time in two weeks.

The Shanghai Composite rose only 0.3%.

PIPE DOWN

In commodity markets oil prices have steadied since Monday’s bounce on concern that Palestinian militants’ surprise attack on Israel could spark a wider conflict. Brent futures traded at $87.90 a barrel, after hitting $89 on Monday.

European gas prices, which had jumped on news of the Middle East violence, have surged further on concern a gas pipe in Finland was sabotaged with the benchmark Dutch contract < touched a seven-month high on Tuesday.

Elsewhere in foreign exchange trade the yen has clung to a small bounce made as the Middle East tension has supported safe-haven assets, last trading at 148.94 per dollar.

The euro scarcely budged at $1.0601.

U.S. stock futures were steady and European futures hovered where cash trade left off on Tuesday.

Samsung shares jumped 3% on a smaller-than-expected dive in third-quarter profit and on hopes the memory chip market is finally turning. Battery maker LG Energy Solution shares surged 7% after it said its third-quarter profit was likely up 40% on a year earlier.

Qantas

shares had their best session in three months in Australia after airline said its chairman would resign, as it seeks to repair a battered reputation.

Exxon Mobil

is expected to say on Wednesday it will buy U.S. rival Pioneer Natural Resources for about $60 billion, according to people familiar with the matter.

Pepsi began U.S. earnings season on with an upbeat report, having been able to raise prices and with the chief financial officer expecting further modest gains – boding well for consumption but perhaps sounding a warning on inflation.

A European Central Bank survey on inflation expectations is due later on Wednesday. Later in the week, U.S. earnings season hits full swing with big banks’ profits seen rising. – Reuters