Asia equities rise as traders dial back Fed wagers: markets wrap
Asian stocks gained to follow Wall Street higher after traders scaled back wagers on Federal Reserve rate hikes, with expectations of further China stimulus helping rekindle risk sentiment.
A benchmark for Asian equities rose for a fifth day, set for its longest winning streak since early September. Fed Bank of San Francisco president Mary Daly said rates would not stay as high as they are now indefinitely, adding to a string of latest comments by US central bank officials that raised hopes rate hikes may be done for now.
“Recently, bond yields have tightened, meaning financial conditions have tightened,” Daly, who doesn’t vote on rate decisions this year said on Tuesday. “If that’s tight, maybe the Fed doesn’t need to do as much.”
Hong Kong equity gauges rallied more than 1% while mainland shares climbed following a Bloomberg report that China is considering raising its budget deficit as the government prepares to unleash fresh stimulus. South Korea’s Kospi benchmark rebounded from the brink of a technical correction. Samsung Electronics Co. drove the gains as traders focused on a narrower clip of profit drop from the chip giant.
Treasuries advanced in Asia trading, extending Tuesday’s rally when US government bond yields posted some of their biggest one-day declines all year. Fed swaps currently show more than 60% chance the Fed will stay on hold in December, compared with 60% odds on another hike by then, just a week ago.
The Bloomberg dollar index fell for a sixth straight day on shifting Fed bets. Emerging market currencies gained, with the Korean won leading the advance.
“Policymakers have begun to acknowledge a lesser need for further policy action given financial conditions have tightened considerably after the recent surge in Treasury yields,” said Ben Jeffery at BMO Capital Markets. “This acknowledgment may have reduced angst around the need for additional rate increases.”
Investors will be watching for any hints in the September Fed meeting minutes due on Wednesday that would suggest the central bank may not follow through with the last hike indicated in its economic projections, according to Anna Wong at Bloomberg Economics. Two critical upcoming economic indicators — Thursday’s consumer price index and Friday’s University of Michigan consumer-sentiment survey — may give a more definitive read, she noted.
Global investors also kept a close eye on geopolitics. President Joe Biden said the US is “surging” military assistance to Israel in the wake of the Palestinian militant group Hamas’ surprise attack. The US will encourage Qatar to help facilitate conversations with Hamas about the return of American hostages seized during the weekend incursion into Israel, the White House said on Tuesday.
Billionaire investor Paul Tudor Jones told CNBC the current geopolitical environment is the “most threatening and challenging” he’s ever seen in the wake of Hamas’s attack on Israel over the weekend and predicted the US will enter into a recession early next year.
Investors will be watching a five-year Japan government bond auction later on Wednesday.
Elsewhere, oil held onto most of the surge seen earlier this week as the Israel-Hamas war remained contained and Saudi Arabia pledged to help ensure market stability.