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Asian stocks jump after Powell speech

Asian share markets have rediscovered their appetite for risk after US Fed chair Jerome Powell signalled a slowdown in the bank’s aggressive rate hikes.

December 1, 2022
By Ankur Banerjee
1 December 2022

Asian equities have jumped 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 US dollar and Treasury yields fell.

MSCI’s broadest index of Asia-Pacific shares outside Japan jumped two per cent in early Asian trade on Thursday.

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 per cent on the year.

Japan’s Nikkei opened one per cent higher while Australia’s S&P/ASX 200 index rose 0.85 per cent. E-mini futures for the S&P 500 rose 0.20 per cent.

ING regional head of research Robert Carnell said it would be very hard 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 pricing in a 91 per cent probability the Fed will increase rates by 50 basis points on December 14, and see a nine per cent chance of another 75 basis point hike.

Mainland China stocks opened up 1.2 per cent and Hong Kong shares rose 2.5 per cent 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.

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 per cent, while the yield on the 30-year Treasury bond was 6.8 bps lower at 3.755 per cent.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 5.2 bps at 4.321 per cent.

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 one per cent drop into Thursday, dipping as low as 105.69.

The Japanese yen strengthened 1.02 per cent versus the greenback at 136.65 per dollar, while sterling was last trading at $US1.2086, up 0.25 per cent on the day.

Gold prices climbed to a two-week high in early Asian trade on Thursday. Spot gold added 0.5 per cent to $US1,776.95 an ounce.

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