Stocks rally as Fed’s historic rate hikes near end: Markets wrap

Stocks and currencies in Asia rose in a relief rally as investors weighed the possible peak of the Federal Reserve’s historic tightening campaign.

Equity benchmarks advanced across the region from Sydney to Hong Kong, with tech firms at the forefront. The South Korean won led emerging-market currencies higher, while the yen also advanced. US stock futures edged higher.

The rebound indicated relief among investors in assets that had been battered by expectations of higher-for-longer US rates, after Federal Reserve officials hinted that a run-up in long-term Treasury yields reduces the impetus to tighten policy further. While they left the door open to another increase, Chair Jerome Powell indicated that a pause gives the central bank time to assess if it needs to do more to contain inflation.

Following a 20-basis-point slump in Treasury 10-year yields on Wednesday, bonds in the region rallied. New Zealand yields led the decline with a 25-basis-point drop, while even Japanese sovereign bond yields fell despite weak demand at the country’s first bond sale since the central bank loosened its grip on its yield curve control policy on Tuesday.

“The headwind from higher rate and a higher USD should abate for EM and Asian assets and ease some of the pressures on Asian central banks that have been recently hiking and been focused on currency moves,” said Kerry Craig, a global market strategist at JPMorgan Asset Management. “However, a weaker growth outlook for the US economy suggests weaker demand which may weigh on export growth across the global goods chain.”

Lower Treasury yields weighed on the greenback, which weakened against major currencies, and helped buttress the yen. The Japanese currency strengthened early Thursday extending gains from Wednesday.

Fed Chair Jerome Powell left the door open for further hikes in the central bank’s Wednesday decision, but noted that financial conditions have “tightened significantly in recent months driven by higher, longer—term bond yields, among other factors.”

Powell repeatedly said the committee was moving “carefully,” a wording that often has signaled a low likelihood of any immediate change in policy. He also said risks to the outlook have become more two-sided as the tightening campaign nears its end.

US jobs data painted a mixed picture. There were more job openings than forecast, according to the latest JOLTS data, while ADP’s private payrolls figures showed fewer new roles than anticipated. Initial jobless claims figures will be released later Thursday.

Some observers cautioned against reading too much into Powell’s words. “I don’t think it’s the turning point just yet,” said Matthew Haupt, fund manager at Wilson Asset Management. “Fed is trying to hold curves where they are, so conditions don’t turn too easy too quick.”

Elsewhere, the Bank of England is expected to hold rates for a second consecutive meeting Thursday, as inflation concerns ease.

Back in Asia, South Korea’s inflation unexpectedly accelerated in October, reinforcing the case for the local central bank to keep its restrictive policy in place for longer. Meantime, Japanese Prime Minister Fumio Kishida announced a larger-than-expected economic stimulus package.

Other economic releases Thursday include a monetary policy decision in Malaysia and PMI data for Singapore. Investors will also be keeping an eye on earnings releases from Tata Motors Ltd and Adani Enterprises Ltd. Other companies due to release results include Eli Lilly & Co and Novo Nordisk, while Apple Inc will deliver its latest earnings later on Thursday in the US.

Semiconductor manufacturers and related stocks jumped after AMD provided a strong sales forecats of its new processor with SK Hynix and Samsung Electronics leading the way.

West Texas Intermediate, the US oil benchmark, advanced more than 1% to above $81 per barrel, retracing a Wednesday decline. Gold was steady and bitcoin traded largely unchanged at around $35 500.

Key events this week:

• Eurozone S&P Global Eurozone Manufacturing PMI, Thursday
• Bank of England interest rate decision. Governor Andrew Bailey holds news conference, Thursday
• US factory orders, initial jobless claims, productivity, Thursday
• Apple earnings, Thursday
• China Caixin services PMI, Friday
• Eurozone unemployment, Friday
• US unemployment, nonfarm payrolls, Friday
• Canada employment report, Friday

Here are some of the major moves in markets:

Stocks

• S&P 500 futures rose 0.2% as of 1:10 p.m. Tokyo time. The S&P 500 rose 1.1%
• Nasdaq 100 futures rose 0.4%. The Nasdaq 100 rose 1.8%
• Japan’s Topix rose 0.2%
• Australia’s S&P/ASX 200 rose 0.9%
• Hong Kong’s Hang Seng rose 1.2%
• The Shanghai Composite rose 0.1%
• Euro Stoxx 50 futures rose 0.6%

Currencies

• The Bloomberg Dollar Spot Index fell 0.3%
• The euro rose 0.3% to $1.0599
• The Japanese yen rose 0.4% to 150.35 per dollar
• The offshore yuan rose 0.1% to 7.3271 per dollar

Cryptocurrencies

• Bitcoin rose 0.3% to $35,575
• Ether rose 0.3% to $1,860.48

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.72%
• Australia’s 10-year yield declined 14 basis points to 4.80%

Commodities

• West Texas Intermediate crude rose 1% to $81.27 a barrel
• Spot gold rose 0.1% to $1 984.85 an ounce

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