Asian shares take their cue from firmer Wall Street

Hong Kong — Asian stocks broadly rallied on Thursday morning, after the US Federal Reserve flagged the end of its tightening cycle and struck a dovish tone for the year ahead.

US treasury yields slid to fresh four-month trough, while the dollar continued to slide.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 1.6%.

Mainland Chinese blue chips edged up by 0.65%, while Hong Kong’s benchmark advanced 1.7%. Australian shares were up 1.6%.

However, Japan’s Nikkei slid 0.4%, weighed down by the yen’s sharp rally.

The Fed left interest rates unchanged on Wednesday and US central bank chief Jerome Powell said its historic tightening of monetary policy is likely over with inflation falling faster than expected.

A near-unanimous 17 of 19 Fed officials project that the policy rate will be lower by the end of 2024 than it is now — with the median projection showing the rate falling three-quarters of a percentage point from the current 5.25%-5.50% range. US fed funds futures boosted the chances of rate cuts starting as soon as in March after the Fed decision, according to LSEG’s FedWatch. The market has priced in more than 150 basis points of easing next year.

“It was a very aggressive pivot,” said Ben Luk, global macro strategist at State Street Asia.

“The Fed has followed market expectation in terms of allowing for one more rate cut to be added into both the 2024 and the 2025 [outlooks],” he said.

That aggressive pivot will have a mixed effect in Asia, with tech shares to benefit more while markets including Japan will have a dampening effect as its currency strengthens with a weakening US dollar, he said.

It is a busy week for central banks, with the European Central Bank (ECB), Bank of England and Swiss National Bank all announcing policy decisions on Thursday. The Bank of Japan’s turn comes on Tuesday.

US stocks surged to a sharply higher close on Wednesday and benchmark Treasury yields slid to their lowest level since August 10.

US stock futures, the S&P 500 e-minis, were up 0.32% on Thursday, while the 10-year treasury yield pushed down further to as low as 3.9845%, breaking below the psychological 4% mark.

The US dollar index, which measures the greenback against a basket of currencies, fell a further 0.18% to 102.70.

The euro gained 0.2% to $1.0896.

The yen sat significantly higher, with the dollar sliding 0.4% to ¥142.335.

Spot gold was up 0.25% at $2,031.49/oz, after rising 2.4% on Wednesday.

Oil prices rose, extending gains from the previous session. Brent futures rose 46 cents, or 0.6%, to $74.72 a barrel. US West Texas Intermediate crude rose 48c, or 0.7%, to $69.95.

Reuters