Asia Stocks Rise as Fed Takes Dovish Stance
Stockmarkets in Asia and the Dollar Retreat
Asia’s stockmarkets experienced a rise on Wednesday while the dollar took a step back. This shift in tone came as Federal Reserve officials adopted a more dovish stance, causing traders to revise their expectations for US interest rates. However, all eyes remain on the upcoming US inflation data set to be released on Thursday. The MSCI’s broadest index of Asia-Pacific shares outside Japan increased by 1.3%, reaching a two-week high during morning trading. Meanwhile, the dollar also experienced a decline.
Less Confidence in Rate Hikes
Atlanta Fed President Raphael Bostic expressed his belief that there is no need for further rate hikes, receiving applause at the American Bankers Association conference in Nashville on Tuesday. Other Fed officials have also noted that recent increases in long-term yields could effectively tighten financial conditions and reduce inflation. Consequently, there may be less pressure on the central bank to adjust short-term rate levels. As a result of these comments, expectations for a rate hike later this year have decreased, leading to a drop in Treasury yields and a subsequent decline in the dollar.
Market Reaction and Currency Movements
The 10-year yield experienced a decrease of 12.7 basis points on Tuesday and remained stable in Asia at 4.64%. Australian and New Zealand dollars reached their highest levels against the dollar since September, and sterling reached a three-week peak. The euro, on the other hand, remained steady at $1.0607, close to its two-week high from the previous day. However, as traders eagerly awaited the US Consumer Price Index figures, market movements were relatively small.
China’s Stimulus Measures and Developer’s Warning
In addition to the Fed’s dovish stance, Bloomberg News reported that China is preparing stimulus measures to boost its economy. This news further supported market sentiment. However, concerns arose as giant developer Country Garden issued a warning stating that it would not be able to meet its offshore payment obligations in a timely manner. Despite this warning, the overall market mood remained positive.
Oil Prices and European Gas Prices
Oil prices have experienced a slight decline since bouncing back on Monday due to concerns about the recent Palestinian militants’ attack on Israel potentially leading to a broader conflict. European gas prices initially surged due to the Middle East violence and further increased on Tuesday following concerns of sabotage on a gas pipe in Finland. The subsea link connecting Finland and Estonia, which could take months to repair, was shut down on Sunday. The Finnish president stated that the damage was likely caused by external activity. Consequently, Dutch gas prices reached a seven-month high and settled 14% higher.
Yen’s Response and US Stock Futures
As tensions in the Middle East supported safe-haven assets, the yen experienced a small increase. US stock futures remained stable in Asia. Additionally, Samsung shares surged due to better-than-expected third-quarter profit results and optimism surrounding the memory chip market.
Pepsi’s Upbeat Report
Pepsi kicked off the US earnings season with an optimistic report. Although volume experienced a slight dip of 2.5%, prices increased by 11%. The company’s chief financial officer also mentioned that further price rises are expected next year. This positive outcome indicates that making more money with slimmer volumes is not a negative outcome. Pepsi’s management team expressed confidence in the current state of the consumer and provided guidance and commentary ahead of schedule.
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