Sydney December 1 2022: Asian equities jumped on Thursday, while the dollar slid as investors poured into risky assets after Federal Reserve Chair Jerome Powell opened the door to a slowdown in the pace of monetary tightening.
In an eagerly-awaited speech, Powell said the central bank could scale back the pace of its interest rate hikes “as soon as December,” but cautioned that the fight against inflation was far from over.
Powell’s comments at the Brookings Institution in Washington sent Wall Street equities soaring, while the U.S. dollar and Treasury yields fell.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) jumped 2% in early Asian trade.
The index posted its biggest monthly gain in nearly 30 years in November as hopes for a Fed pivot towards slower rate hikes gathered steam after four consecutive 75-basis-point increases. But the index was still down about 17.5% on the year.
Japan’s Nikkei (.N225) opened 1% higher while Australia’s S&P/ASX 200 index (.AXJO) rose 0.85%. E-mini futures for the S&P 500 rose 0.20%.
ING regional head of research Robert Carnell said it will be very hard now for the Fed to push back against market expectations for a slowdown in rate hikes.
“It looks as if Fed Chair Powell didn’t get the memo to push back against pivot hopes and keep financial conditions tight before he went to give his speech,” he said.
“So let’s hope that inflation does keep on falling, or this may look like a missed opportunity.”
Markets are currently pricing in a 91% probability that the Fed will increase rates by 50 basis points on Dec. 14, and see a 9% chance of another 75 basis point hike.
Mainland China stocks (.SSEC) opened up 1.2% and Hong Kong shares (.HSI) rose 2.5% in early trade after they closed higher on Wednesday following the easing of COVID-19 measures in Guangzhou city.
China’s factory activity shrank in November as widespread curbs disrupted manufacturers’ output, a private sector survey showed on Thursday, weighing on employment and economic growth in the third quarter.
U.S. Treasury yields fell after Powell’s comments and remained lower Thursday. The yield on 10-year Treasury notes was down 8.3 basis points at 3.618%, while the yield on the 30-year Treasury bond was 6.8 bps lower at 3.755%.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 5.2 bps at 4.321%.
The safe-haven dollar also lost its footing, with the dollar index – which measures the currency against six major peers including the yen and euro – extending Wednesday’s more than 1% drop into Thursday, dipping as low as 105.69.
The Japanese yen strengthened 1.02% versus the greenback at 136.65 per dollar, while sterling was last trading at $1.2086, up 0.25% on the day.
In commodity markets, gold prices climbed to a two-week high in early Asian trade on Thursday. Spot gold added 0.5% to $1,776.95 an ounce, while U.S. gold futures gained 1.73% to $1,776.20 an ounce.
