Asian equities follow Wall Street higher; yields and dollar down
A man walks past an electric monitor displaying Japan’s Nikkei share average and recent movements, outside a bank in Tokyo, Japan, June 5, 2023. REUTERS/Issei Kato/file photo
HONG KONG – Asian stocks broadly rallied on Thursday morning, after the U.S. Federal Reserve flagged the end of its tightening cycle and struck a dovish tone for the year ahead.
U.S. Treasury yields slid to fresh four-month trough, while the dollar continued to slide.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 1.6 percent.
Mainland Chinese bluechips edged up by 0.65 percent, while Hong Kong’s benchmark advanced 1.7 percent. Australian shares were up 1.6 percent.
However, Japan’s Nikkei slid 0.4 percent, weighed down by the yen’s sharp rally.
READ: Yen rallies on hints of BOJ policy shift
The Fed left interest rates unchanged on Wednesday and U.S. central bank chief Jerome Powell said its historic tightening of monetary policy is likely over with inflation falling faster than expected.
A near-unanimous 17 of 19 Fed officials project that the policy rate will be lower by the end of 2024 than it is now – with the median projection showing the rate falling three-quarters of a percentage point from the current 5.25 percent-5.50 percent range.
U.S. fed funds futures boosted the chances of rate cuts starting as soon as in March after the Fed decision, according to LSEG’s FedWatch. The market has priced in more than 150 bps of easing next year.
“It was a very aggressive pivot,” said Ben Luk, global macro strategist at State Street Asia Limited.
“The Fed has followed market expectation in terms of allowing for one more rate cut to be added into both the 2024 and the 2025 (outlooks),” he said.
That aggressive pivot will have a mixed impact in Asia, with tech shares to benefit more while markets including Japan will have a dampening effect as its currency strengthens with a weakening U.S. dollar, he added.
It’s a busy week for central banks, with the European Central Bank, Bank of England and Swiss National Bank all announcing policy decisions on Thursday. The Bank of Japan’s turn comes on Tuesday.
READ:Bank of England to hold rates as markets raise bets on 2024 cuts
U.S. stocks surged to a sharply higher close on Wednesday and benchmark Treasury yields slid to their lowest level since Aug. 10.
U.S. stock futures, the S&P 500 e-minis, were up 0.32 percent on Thursday, while the 10-year Treasury yield pushed down further to as low as 3.9845 percent, breaking below the psychological 4 percent mark.
The U.S. dollar index, which measures the greenback against a basket of currencies, fell a further 0.18 percent to 102.70.
The euro gained 0.2 percent to $1.0896.
The yen sat significantly higher, with the dollar sliding 0.4 percent to 142.335 yen.
Spot gold was up 0.25 percent at $2,031.49 per ounce, after rising 2.4 percent on Wednesday.
Oil prices rose, extending gains from the previous session. Brent futures rose 46 cents, or 0.6 percent, to $74.72 a barrel. U.S. West Texas Intermediate crude rose 48 cents, or 0.7 percent, to $69.95.
