Asian stocks firmer after reassurance Fed will cut rates in 2024

Sydney — Asian shares rose on Thursday while the dollar nursed losses after the world’s most powerful central banker reassured investors that US rates would fall in 2024, setting the scene for policymakers in Europe.

Japan’s Nikkei, however, reversed earlier gains and the yen jumped past the ¥149 to the dollar level to the highest in a month as momentum builds that a move from the Bank of Japan (BOJ) to end negative interest rates could come as soon as March.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%, while Japan’s Nikkei slid 0.9%, after hitting a new record high earlier in the session.

Japanese workers’ nominal pay in January grew 2% from a year earlier, data showed, accelerating from a gain of 0.8% the previous month. In other news, Japan’s major union won big pay hikes in 2024 wage talks. BOJ board member Junko Nakagawa said on Thursday the economy was moving steadily towards sustainably achieving the central bank’s 2% inflation target.

On speculation the BOJ could move in March, the dollar lost 0.5% to a one-month low of ¥148.67.

There was muted reaction to better than expected China trade figures. China’s exports rose 7.1% in the January-February period from a year earlier, while imports increased 3.5%, both beating forecasts.

Chinese blue chips rose 0.1% and the Shanghai Composite index gained 0.2%. Hong Kong’s Hang Seng index was an outlier, down 0.2%.

Elsewhere, markets were mostly higher, with Taiwan’s share market hitting a record high, after Federal Reserve chair Jerome Powell stuck to the script by saying the Fed still expects to cut rates later in 2024, even though continued progress on inflation “is not assured”.

That kept bets of a rate cut in June alive at an 84% probability. Longer-term bond yields slipped, gold prices hit a record high and oil jumped.

“There was nothing particularly surprising within Fed chair Powell’s prepared monetary policy testimony to Congress — which is pretty short in fairness — or the Q&A session,” said James Knightley, chief international economist at ING.

“More data is required, but with more evidence of a cooling jobs market we still think they can cut rates from June.”

Indeed, data showed US private payrolls increased slightly less than expected in February, though the report does not have a strong correlation with the official nonfarm payrolls report due on Friday.

For now, investors are looking ahead to the policy action in Europe. The European Central Bank (ECB) is set to keep interest rates steady at a record 4.0%, but any messaging from policymakers that support a rate cut in June would be a relief to markets.

Futures are almost fully priced in for a first rate cut from the ECB in June, with a total easing of 88 basis points (bps) expected for all of 2024.

In the currency markets, the broad weakness in the dollar has helped the euro break key resistance to a six week top of $1.0901, but a major chart level of $1.0916 weighed.

Treasuries were a little lower in Asia. The benchmark 10-year US yield rose almost 2bps to 4.1195%, having slipped 3bps overnight to 4.0790%, the lowest in a month.

Commodity prices rallied on a softer dollar. Gold prices were 0.1% higher on Thursday at $2,150.35/oz after hitting a record high of $2,152.09 overnight.

Oil prices were mostly flat, having jumped 1% on Thursday. Brent held at $82.97 a barrel, while US crude was little changed at $79.11 a barrel.

Bitcoin hovered near record highs at $66,361.

Reuters