Asian shares lift on signs rate increases are doing the trick

Hong Kong — Asian stocks rose on Wednesday as investors grew hopeful that future global interest rate rises might become less aggressive amid early signs previous policy tightening was working to temper price pressures in some major world economies.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.5%, after US stocks ended the previous session with gains. The index is down 0.6% so far in October.

Australian shares were up 1.35% in early trade, while Japan's Nikkei stock index climbed 0.34%.

Hong Kong’s Hang Seng index gained 3.76% a day after its public holiday while mainland Chinese markets remain closed for holidays.

The strong start for Australian shares is the first two-day gain since September 13 and follows the share market’s best day in more than two years on Tuesday after the Reserve Bank of Australia ordered a smaller-than-expected 25 basis points interest rate rise.

On Wall Street, the Dow Jones and S&P 500 indexes staged their biggest two-day rallies in two years as fears of aggressive rate hikes eased.

The positive sentiment was fuelled after US job openings fell by the most in nearly 2-1/2 years in August in a sign the Federal Reserve's mission to tame demand by hiking rates was working.

“Markets (have) clawed back more of the ground they lost in a slippery several weeks on Wall Street, amid hopes the Federal Reserve would moderate its aggressive approach to its plans for interest rate increases after data was released showing a drop in job openings in the country,” Ord Minnett research analyst wrote in a client note on Wednesday.

However, in a sign some central banks are still anxious about inflation, New Zealand raised its rates 50 basis points on Wednesday, as expected, but said it had considered a 75-basis point increase.

The Dow Jones Industrial Average rose 2.8%, the S&P 500 gained 3.06% and the Nasdaq Composite added 3.34%.

The S&P 500 has recorded its third-best start to an October since 1930, according to Macquarie analysts. “Global financial markets have staged a sharp recovery buoyed by expectations that central banks may follow the RBA’s lead and ease the pace at which they tighten monetary policy,” ANZ analysts said.

“Views are mixed as to whether markets have now bottomed out or whether this recovery will be short-lived.” The yield on benchmark 10-year treasury notes rose to 3.625% compared with its US close of 3.617% on Tuesday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 4.0905% compared with a US close of 4.097%.

The dollar dropped 0.21% against the yen to ¥143.79.

The euro slipped 0.1% on the day to $0.9974, having gained 1.79% in a month, while the dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was lower, having fallen nearly 4% since September 26.

“The dollar's significant move lower since making a new 20-plus year high last Wednesday, is an entirely logical response to the combination of smartly lower US bond yields and much improved risk sentiment,” National Australia Bank analysts wrote on Wednesday.

US crude dipped 0.15% to $86.39 a barrel. Brent crude fell flight $91.80 per barrel.

Gold was slightly lower. Spot gold traded at $1,724.6667/oz.

Reuters