SINGAPORE: After Federal Reserve Chair Jerome Powell hinted at a slowing in the tempo of monetary tightening on Thursday, investors flocked to riskier assets, causing Asian markets to jump and the dollar to decline.
The central bank might slow rate hikes “as soon as December,” Powell said in a speech that was eagerly anticipated, but he also cautioned that the fight against inflation was far from over.
Following Powell’s statements at the Brookings Institution in Washington, Wall Street stocks rose while the US dollar and Treasury yields dipped. Early Asian trading witnessed a 2% rise in MSCI’s broadest index of Asia-Pacific shares outside of Japan (.MIAPJ0000PUS).
The index saw its most significant monthly gain in more than 30 years in November as expectations for a Fed shift toward more moderate rate increases intensified after four straight rate hikes of 75 basis points. The index was still down roughly 17.5% for the year.
The S&P/ASX 200 index in Australia (.AXJO) surged 0.85%, while the Nikkei (.N225) in Japan started the day 1% higher. S&P 500 E-mini futures increased by 0.20%.
Robert Carnell, regional head of research at ING, believes it will be very challenging for the Fed to defy market expectations for a pause in rate hikes.
Markets currently forecast that the Fed will hike interest rates by 50 basis points on December 14 with a 91% probability, and they also estimate a 9% chance of another increase of 75 basis points.
Due to the lifting of COVID-19 restrictions in Guangzhou, Hong Kong shares (.HSI) climbed 2.5% in early trade after closing higher on Wednesday, while mainland China shares (.SSEC) opened up 1.2% higher.
In the wake of Powell’s remarks, U.S. Treasury yields dropped and stayed lower on Thursday. In contrast to the 30-year Treasury bond yield, which fell by 6.8 basis points to 3.755%, the yield on the 10-year Treasury note decreased by 8.3 basis points to 3.618%.
Two-year U.S. Treasury bond yields, which generally fluctuate in lock-step with forecasts for interest rates, were down 5.2 basis points at 4.321%.
At 136.65 yen per dollar, the Japanese yen gained 1.02% against the US dollar, while sterling was last up 0.25% on the day at $1.2086.
In the early hours of Thursday’s Asian trading, gold prices increased to a two-week high. Spot gold increased by 0.5% to $1,776.95 per ounce, while U.S. gold futures increased by 1.73% to $1,776.20 per ounce.