Sydney, July 28 (BNA): Asian shares made cautious gains on Thursday as investors snorted a possible slowdown in the pace of US interest rate hikes, calming bond markets and pushing the dollar to a three-week low on the yen.
Reuters reported that the US Federal Reserve did not surprise anyone by raising interest rates by 75 basis points to 2.25-2.5% on Wednesday, but changed its statement to indicate some pullback in recent data.
Federal Reserve Chairman Jerome Powell sounded appropriately hawkish about curbing inflation at his press conference, but also gave up guidance on the size of the next rate hike and indicated that “at some point” it would be appropriate to slow down.
“The Fed no longer feels behind the curve and can now assess the appropriateness of ‘meet by meeting’,” said Elliott Clark, chief economist at Westpac.
“This does not mean that the rate-raising cycle is complete or even that there is a pause ahead, but the risks appear to be moving from skew to bullish to bearish.”
The futures market is still pricing in 100 basis points of further tightening by the end of the year, but is also signaling about 50 basis points of price cuts through 2023.
Just a hint of a less aggressive Fed was enough to lift MSCI’s broadest index of Asia Pacific shares outside Japan by 0.7%.
Japan’s Nikkei gained 0.3% and South Korea’s 0.7%. China’s blue-chip stocks rose 0.6%, buoyed by reports that Beijing is planning more support for the hard-hit real estate sector.
EUROSTOXX 50 futures are also up 0.6% and FTSE futures are up 0.2%.
However, shares of several major US technology companies, including Meta Platforms, fell after hours as quarterly results and poor forecasts confirmed recession fears.
That sent Nasdaq futures down 0.4%, after enjoying their biggest daily gain since April 2020 on Wednesday, while S&P 500 futures fell 0.2%.
Attention now turns to the US Q2 GDP data as another negative reading matches the technical definition of a recession, although the US has its own way of deciding that.
The median forecast is for 0.5% growth, but the closely watched Atlanta Fed estimate of GDP will be down 1.2%.
In the bond markets, the 2-year Treasury yield was flat at 3.00% after falling 6 basis points in the wake of the Fed meeting.
Although the yield curve sloped slightly, most of it remained inverted indicating that investors believe that policy tightening will lead to an economic downturn and lower inflation.
“While central banks are still on track to continue tightening this year, the fastest pace of rate hikes is increasingly likely to be behind us,” analysts at JPMorgan said in a note.
“Lower commodity prices, particularly with the exclusion of European natural gas, should ease inflation, and the global economy outside China is losing momentum.”
In currencies, the dollar index slipped slightly to 106.320 after losing 0.7% overnight as risk sentiment improved.
It also suffered a rare setback for the Japanese yen, falling 0.7% to 135.54 as some investors decided to take profits on a group of long positions.
The euro was hovering around $1.0204, having rebounded 0.9% overnight, but is facing stiff resistance at $1.0278.
The single currency is still facing an energy crisis as the International Monetary Fund warned that a complete cut of Russian gas from Europe by the end of the year could lead to nearly zero economic growth next year.
Russia delivered less gas to Europe this week and warned of more cuts to come, raising gas and oil prices globally. The decline in crude oil inventories and the recovery in gasoline demand in the United States also supported prices.
US crude rose another 92 cents to $98.18 a barrel, having rebounded 2.4% overnight, while Brent crude rose 75 cents to $107.37.
Spot gold was 0.2% stronger at $1,737 an ounce, after benefiting from weaker dollar and bond yields.
MI