Asian shares soared on Thursday while the dollar eased after Federal Reserve Chair Jerome Powell said a “disinflationary” process was underway, boosting risk appetite as investors hope the climb in U.S. interest rates will come to an end soon.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was 0.91% higher on Thursday. After shedding nearly 20% last year, the index is up nearly 11% for the year and just had its best January performance since 2012.
Japan’s Nikkei (.N225) rose 0.10%, while Australia’s S&P/ASX 200 index (.AXJO) was 0.14% higher. Chinese stocks (.SSEC) were 0.11% higher, while Hong Kong’s Hang Seng Index (.HSI) was up nearly 1%.
Futures indicated European stocks were likely to continue the rally, with Eurostoxx 50 futures up 0.74%, German DAX futures 0.74% higher and FTSE futures up 0.46%.
The U.S. Federal Reserve announced an expected 25 basis points interest rate increase after a year of larger hikes and said it had turned a key corner in the fight against a high inflation rate. But policymakers projected “ongoing increases” in borrowing costs would still be needed.
Still, the market took a dovish cue from Powell’s comments to a news conference on the “disinflationary” process being underway. That helped the S&P 500 and the Nasdaq close sharply higher overnight.
Ali Hassan, portfolio manager & managing director at Thornburg Investment Management, said Powell was seemingly shrugging off easier financial conditions as a concern in his news conference. “This was a greenlight that the market could buy without feeling that they are fighting the Fed.”
The prospect of a less aggressive pace in monetary tightening has raised expectations of a so-called soft landing – a scenario in which inflation eases against a backdrop of weakening but resilient economic growth.
Powell on Wednesday said that his hopes for an economic soft landing, despite very aggressive interest rate rises, remain alive.
“From here on, data will have more weight than what he (Powell) says,” said Charu Chanana, market strategist at Saxo Markets in Singapore.
“Therefore the risk-on rally will potentially have room to run until economic data surprises substantially to jolt the soft landing narrative that the market has been relying on.”
The focus will now switch to European Central Bank (ECB) and Bank of England (BOE) meetings scheduled for Thursday and the interest rate path the two central banks are likely to take.
Saxo Markets strategists said the ECB has surpassed its peers in hawkishness recently, and will likely repeat that this week. The BOE will likely be the trickiest to predict given indecisive market pricing as well as the scope for a split vote, they said.
In the corporate world, Meta Platforms Inc (META.O) unveiled stricter cost controls this year and a new $40 billion share buyback, with CEO Mark Zuckerberg calling 2023 the “Year of Efficiency.”
Meta stock surged in after market trading, lifting Nasdaq futures up 1%. E-mini futures for the S&P 500 rose 0.34%. All eyes will be on earnings from Apple (AAPL.O) and Amazon (AMZN.O) later on Thursday.
In the currency market, the dollar spiked lower following Powell’s remarks, with the U.S. dollar index , which measures the currency against six major peers, falling to a fresh nine-month low of 100.80 on Wednesday. It was last at 100.89 on Thursday.
The euro was up 0.27% to $1.1019. The yen strengthened 0.41% to 128.43 per dollar, while sterling was last trading at $1.2388, up 0.10% on the day.
Spot gold added 0.2% to $1,953.44 an ounce, having touched nine-month high of $1,957 per ounce earlier.
West Texas Intermediate (WTI) U.S. crude rose 1.06% to $77.22 per barrel and Brent was at $83.59, up 0.91% on the day.