Asian Markets Rise After Powell Suggests Rate Hikes Set to Slow

Asian equities jumped on Thursday, after Federal Reserve chairman Jerome Powell said the US central bank would scale down the pace of its interest rate hikes.

Powell’s comments – that the US Fed could reduce the pace of its rate hikes “as soon as December” – at a talk in Washington came with a warning that the fight against inflation was a long way from over.

But the change in sentiment sent Wall Street equities soaring, while the US dollar and Treasury yields fell.

The impact was felt in Asia shortly after, with MSCI’s broadest index of Asia-Pacific shares outside Japan jumping 2% in early trading.

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 opened 1% higher while Australia’s S&P/ASX 200 index rose 0.85%. E-mini futures for the S&P 500 rose 0.2%.

Mainland China stocks opened up 1.2% and Hong Kong shares 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.

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Dollar Index Dips, Yen Rises

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 December 14, and see a 9% chance of another 75 basis point hike.

US 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 US 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 US gold futures gained 1.73% to $1,776.20 an ounce.