(Bloomberg) — Equities in Asia were primed for gains Thursday after Jerome Powell reaffirmed his view the Federal Reserve will likely cut rates this year.
Shares in Australia and stock futures for Japan rose. Contracts for Hong Kong equities also drifted higher, although the market will be closed Thursday for a holiday along with mainland China and Taiwan.
US stocks staged a late-session rally to end higher. The S&P 500 index rose 0.1%, while the tech-heavy Nasdaq 100 index gained 0.2%.
Treasuries also showed fresh vigor during US trading, reversing early selling to end mainly higher following a minor rally tilted toward the front end of the curve. Australian and New Zealand yields were little changed.
Fed Chair Powell reiterated that the central bank will take a wait-and-see approach before reducing borrowing costs. However, his views that recent inflation figures did not “materially change” the overall picture offered support for risk assets.
In recent days, traders had scaled back their rate-cut expectations amid signs of economic resilience and a more cautious tone from a drumbeat of Fed officials. That has led to skepticism on whether Powell and his colleagues would be able to deliver on the central bank’s projection of three rate reductions this year.
“Powell says recent data has not materially changed the picture,” said Krishna Guha at Evercore. “We read this as confirming that the spasm of concern in markets that the economy might be too strong for the Fed to cut in June was overdone — and the base case remains June and three cuts this year.”
Gold held a fresh record set Wednesday, when it topped $2,300 per ounce in a rally helped along by Powell’s support for potential rate cuts this year. West Texas Intermediate extended gains, poised for its fifth straight session of advances, leaving the US benchmark price at around $85 per barrel.
Investors were also assessing the impact of the strongest earthquake to hit Taiwan in a quarter of a century. The shock killed at least nine people and has disrupted semiconductor production. Taiwan Semiconductor Manufacturing Co., a major supplier of chips to Apple Inc. and Nvidia Corp, moved some staff out of its production centers but said there was “no damage to critical tools”.
In currencies, the yen was little changed in Asia as former Bank of Japan board member Makoto Sakurai said Wednesday that the central bank is likely to wait until around October before mulling another interest rate hike. A gauge of dollar strength was little changed after it fell the most in two weeks on Wednesday.
US Economy
Despite a “solid” outlook for a US soft landing, stock investors’ expectations have gotten stretched, according to a note from Morgan Stanley’s global investment committee. The dynamic provides an opportunity to seek opportunities outside the S&P 500,
The US equity benchmark’s rally was driven by multiples expansion, with investors expecting improving profits despite cooling growth, Morgan Stanley Wealth Management Chief Investment Officer Lisa Shalett wrote this week.
Investors appear to be showing “persistent” demand for US stocks, according to Citigroup Inc. strategists, suggesting there’s room for the rally to resume after the recent pullback.
More than $16 billion in net long positions was added to S&P 500 futures last week, while exchange-traded funds showed net inflows, strategists led by Chris Montagu wrote this week.
Key events this week:
- Eurozone S&P Global Services PMI, PPI, Thursday
- US initial jobless claims, Challenger job cuts, Thursday
- Fed’s Loretta Mester, Alberto Musalem, Thomas Barkin, Patrick Harker, Austan Goolsbee speak, Thursday
- European Central Bank publishes account of March rate decision, Thursday
- Eurozone retail sales, Friday
- US unemployment, nonfarm payrolls, Friday
- Fed’s Michelle Bowman, Thomas Barkin and Lorie Logan speak, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 8:20 a.m. Tokyo time
- Hang Seng futures rose 0.7%
- Australia’s S&P/ASX 200 rose 0.5%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0838
- The Japanese yen was little changed at 151.63 per dollar
- The offshore yuan was little changed at 7.2490 per dollar
- The Australian dollar was little changed at $0.6566
Cryptocurrencies
- Bitcoin rose 0.7% to $66,209.85
- Ether rose 0.4% to $3,321.8
Bonds
- Australia’s 10-year yield was little changed at 4.14%
Commodities
- West Texas Intermediate crude rose 0.2% to $85.63 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
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