Sydney — Stocks and commodities rose in relief and the dollar hit a six-week low on Wednesday, after Federal Reserve chair Jerome Powell sounded less hawkish than expected in testimony to Congress, as he charts a path out of pandemic policy settings.
Bonds have also steadied after beginning the year with a rout, though a new test looms later in the day when US inflation data is expected to come in red hot.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1% to a one-month high, led by a 3.5% jump for tech stocks in Hong Kong.
Japan’s Nikkei rose 1.9%.
Powell told a congressional hearing on his confirmation for a second term at the helm of the central bank that the economy could handle the Covid-19 surge and tighter monetary policy.
But he did not go into any new details beyond what traders already gleaned from the minutes of last months’ Fed meeting and that turned out to be enough to staunch selling in the treasury market and US tech stocks.
“One of our main takeaways … was that the sense of urgency on tightening has not obviously heightened compared to the last time we heard from Powell in December,” analysts at NatWest markets said in a note.
The Nasdaq and S&P 500 recorded their best sessions of 2022, rising 1.4% and 0.9%, respectively. S&P 500 futures were steady in early Asia trade.
In the bond market, benchmark 10-year treasury yields were steady at 1.7374% and have pulled back about seven basis points (bps) from an almost two-year high hit on Monday.
Commodities also caught a boost and Brent crude futures leapt 3.5% overnight and inched above $84 a barrel for the first time in two months on Wednesday. US crude rose 3.8% overnight and was last up 0.3% to $81.45 a barrel.
One note of caution was sounded and shares in vaccine makers Moderna and BioNTech were dumped when the World Health Organisation (WHO) said that more research was needed about the efficacy of vaccines against Omicron.
Chinese data showed factory gate price rises are slowing — perhaps a clue that global price pressures could ease.
Later on Wednesday, at 1.30pm GMT, US inflation data is due and headline year-on-year consumer price index (CPI) is forecast to hit an almost four-decade high of 7%.
Yet with Powell having already acknowledged the need to act soon to contain prices, analysts think some new surprise might be needed to move US yields or the dollar higher.
The greenback fell through its 200-day moving average against a basket of currencies overnight and dropped a touch further to a six-week low of 95.563 on Wednesday.
At $1.1367, it is at the bottom of its recent range against the euro. It has steadied at ¥115.29 but fell overnight against the Aussie and kiwi.
“There is already a lot of hawkish news in the price,” said Rabobank currency strategist Jane Foley.
“The dollar may need to see some pullback and fresh news on the interest rate front before finding direction.”
Sterling, meanwhile, has been surging and touched a two-month top of $1.3642 in early Asia trade as investors see Britain overcoming a wave of Covid-19 cases led by the Omicron variant and have priced in a nearly 80% chance of Bank of England rate hike in February.
The dollar’s overnight weakness helped gold to its best percentage gain for a month, though at $1,819/oz it is still hemmed in a range it has kept for half a year.
Cryptocurrencies were steady with investors comforted that bitcoin’s support at $40,000 held this week. Bitcoin last bought $42,600.