Asia’s stock markets saw an upswing on Wednesday, while the dollar witnessed a slight decline, in light of a dovish shift in tone from Federal Reserve officials, leading traders to adjust their U.S. interest rate expectations. However, they remain cautious, keeping a keen eye on U.S. inflation data set to release on Thursday.
The S&P 500 experienced gains overnight, and MSCI’s broadest index of Asia-Pacific shares, excluding Japan, surged by 1.3%, reaching a two-week high during morning trade. In a similar fashion, Japan’s Nikkei rose by 0.5%.
“I actually don’t think we need to increase rates anymore,” declared Atlanta Fed President Raphael Bostic to an applauding audience at the American Bankers Association gathering in Nashville on Tuesday.
This statement follows a series of comments from Fed officials suggesting that recent increases in long-term yields might effectively tighten financial conditions and curb inflation, potentially leaving the central bank with less need to alter short-term interest rates.
Market expectations regarding another Fed rate hike this year have softened this week, with Treasury yields notably retracting from their 16-year peak, consequently dragging the dollar down alongside.
On Tuesday, the 10-year yield fell by 12.7 basis points, holding steady at 4.64% in Asia on Wednesday, after briefly touching 4.884% in response to robust U.S. job data released on Friday.
Today, both the Australian and New Zealand dollars reached their highest values against the dollar since the close of September, while the British pound reached a three-week high. The euro maintained its position at $1.0607, close to the two-week high recorded on Tuesday.
Nevertheless, market movements remained relatively restrained as traders awaited the release of U.S. Consumer Price Index (CPI) figures.
Peter Dragicevich, strategist at cross-border payments firm Corpay, noted, “Signs of moderating U.S. inflation could reinforce the more cautious tone expressed by U.S. Fed members regarding future policy, adding downward pressure on the dollar.”
In addition to the dovish Fed sentiment, a report from Bloomberg News concerning China’s preparation of economic stimulus to bolster its economy also bolstered market sentiment. However, lingering concerns emerged as giant developer Country Garden issued warnings of potential delays in meeting offshore payment obligations.
Market Developments
In the realm of commodity markets, oil prices saw a minor retreat after surging on Monday, prompted by concerns surrounding a surprise attack by Palestinian militants on Israel and its potential to escalate into a wider conflict.
Brent crude futures stabilized at $87.80 per barrel on Wednesday after reaching $89 on Monday. European gas prices, which had surged on the news of the Middle East violence, saw further increases on Tuesday amid concerns of sabotage to a gas pipeline in Finland.
The subsea link connecting Finland with Estonia, possibly requiring months for repair, was closed on Sunday. Finland’s president stated that the damage was likely due to “outside activity.” Dutch gas benchmarks reached a seven-month high on Tuesday, settling 14% higher.
CBA analyst Vivek Dhar commented on the situation, saying, “Europe has higher than usual gas stockpiles for this time of year, as well as lower than normal gas demand, but these buffers still leave Europe exposed to a colder than usual winter and LNG imports in the coming months.”
Furthermore, the yen maintained a modest rebound as tension in the Middle East supported safe-haven assets. U.S. stock futures held steady in Asia.
Shares of Samsung (KS:005930) surged following a smaller-than-expected dip in third-quarter profit, bolstered by optimism surrounding the memory chip market’s potential turnaround.
PepsiCo commenced the U.S. earnings season with a positive report, showing only a 2.5% decline in volume but an 11% increase in prices. The company’s chief financial officer expressed confidence in more price hikes for the coming year.
Sam Rines, managing director at research firm CORBU in Texas, noted, “Making more money with slimmer volumes is not a horrible outcome. With the angst around the consumer and snacks palatable, it is notable that Pepsi gave 2024 guidance and commentary ahead of schedule. And Pepsi’s management team was rather sanguine on the current state of the consumer.”
