MSCI’s Asia Pacific Index rose for a third day, with benchmarks in Hong Kong gaining more than 2% to lead gains in the region. Futures for US stocks also advanced after the S&P 500 climbed nearly 2% on Tuesday, the most since April. 

Traders are now gearing up for what may be a fundamental shift in the investment landscape. Fed swaps indicate the odds of another hike have fallen to almost zero — with the market pricing in a 50 basis-point rate cut by July. Fed officials welcomed the latest data showing receding inflation, while adding that there’s still a ways to go before it reaches the central bank’s 2% target. 

“The fact that the US Fed seems to be done with rates and inflation is behind us for now is definitely a positive for all risky assets,” Pooja Malik, partner and head of portfolio management at Nipun Capital, said on Bloomberg Television. “However, the situation could stay volatile in the next 12 to 18 months.”

The latest economic report from China pointed to a mixed recovery, with retail sales beating estimates but the contraction in property investment deepening. The data followed the Chinese central bank’s decision to inject the largest amount of cash since 2016 into the banking system as it sought to boost growth, while maintaining the rate on one-year policy loans.

The meeting between Chinese President Xi Jinping and his US counterpart Joe Biden is also closely watched for potential thawing of tensions. Tencent Holdings reports earnings later in the day. 

“The level of liquidity injection went beyond market expectation but is in line with our expectation,” said Becky Liu, head of China macro strategy at Standard Chartered Plc. Still, “more supports are needed given renewed downward pressure indicated in October data — so we still see RRR cut before year-end,” she added, referring to the reserve requirement ratio.

Australian and New Zealand bonds rallied, following moves in Treasuries from the previous session, when the yield on rate-sensitive two-year notes slumped as much as 23 basis points and that of the benchmark 10-year rate slid 21 basis points. Japan’s 10-year yield also fell to the lowest level in a month. 

The dollar steadied in Asia after falling 1.2%, its biggest drop in a year. 

The yen fell on a report that the Japanese economy shrank more than estimated in the third quarter. Most emerging Asian currencies strengthened against the greenback, led by South Korea’s won. 

Bullish on bonds

Equities have rallied in November on bets the Fed is done with rate hikes, with the S&P 500 up more than 7% in the span — and heading toward its best month since October 2022. Tesla led gains in mega caps on Tuesday and Nvidia rallied for a 10th straight session. 

Investors also turned the most bullish on bonds since the global financial crisis amid “big conviction” that rates will move lower in 2024, according to the latest Bank of America fund manager survey.  

Meanwhile, US House legislators overcame partisan animosity on Tuesday to pass a temporary government funding bill that greatly lowers the risk of a shutdown. The legislation now goes to the Senate where majority Democrats are expected to back it, even though it doesn’t include the Ukraine and Israel aid they support. 

Elsewhere, oil steadied after a short-lived relief rally as the market digested differing views on the supply and demand outlooks. Gold ticked lower, on course to snap a two-day winning streak.