Asia shares, bonds rally as Powell feeds hopes of end to rate hikes

Asian shares and bonds extended a global rally on Thursday as a non-committal Federal Reserve Chair had markets double down on bets that U.S. interest rates have peaked and cuts are on the way.

Investors are now awaiting the results from Apple later in the day, a bellwether for consumer demand and the tech sector. The Cupertino California-based company is expected to report a 1 per cent decrease in quarterly revenue.

MSCI's broadest index of Asia-Pacific shares outside Japan surged 1.7 per cent to the highest level in one week. Tokyo's Nikkei gained 1.4 per cent to cross the 32,000 level for the first time in two weeks.

China's blue chips were 0.3 per cent higher, while Hong Kong's Hang Seng index jumped 1.7 per cent.

Stock futures in Europe and U.S. also gained. EUROSTOXX 50 futures rose 0.8 per cent early in Asia, while S&P 500 futures added 0.3 per cent and Nasdaq futures increased 0.5 per cent.

Overnight, the Fed held the policy rate steady in its current 5.25 per cent-5.50 per cent range. While Chair Jerome Powell did not rule out another hike, markets judged he was not quite as hawkish as he might have been.

Fed funds futures rallied as markets pared back the risk of a December hike to about 22 per cent and a January move to 28 per cent. Markets have priced in a 70 per cent chance that the tightening is over and rate cuts could amount to 85 basis points next year, beginning as soon as June.

Wall Street and Treasuries rallied. The S&P 500 gained 1 per cent and the Nasdaq Composite surged 1.6 per cent.

The benchmark 10-year Treasury yield eased another 2 basis points to 4.7089 per cent, the lowest in more than two weeks. Overnight, it tumbled 14 basis points, the biggest daily drop since March, also in part due to a Treasury announcement that said the government will slow increases in the size of its longer-dated auctions.

"While growth was incredibly strong in the third quarter of 2024 at 5 per cent, we suspect a substantial slowing in 4Q24, which, based on Powell's remarks today, likely won't be enough to garner additional tightening," Tiffany Wilding, an economist at PIMCO, wrote in a note to clients.

"Instead the FOMC is happy to remain on hold, and watch and see how the economy evolves early next year."

The next big focal point for the market is the non-farm payrolls data on Friday, which analysts expect to show the economy added 180,000 jobs in October, slowing from 336,000 increase the previous month. It will come after private payrolls increased far less than expected.

The dollar was again on the back foot on Thursday, falling 0.1 per cent against its peers. The prospect that the Fed is done tightening buoyed risk sensitive currencies the most, with Australian dollar bouncing 0.6 per cent to a three-week high of $0.6428.

"Although the FOMC may not be talking about it today, within a few months, the question will no longer be 'Will they hike again?' but 'When will they cut?'," said Seema Shah, Chief Global Strategist at Principal Asset Management.

The yen continued to regain ground - up 0.3 per cent to 150.46 per dollar on Thursday. It had hit a one-year low after a Bank of Japan decision to ease its control over the 1 per cent cap on 10-year yields, with the tweak seen insufficient to close the wide interest rate gaps between Japan and other countries.

Oil prices traded higher as the conflict in the Middle East kept investors on edge about whether it could disrupt oil supplies. Brent crude futures climbed 1.2 per cent to $85.61 a barrel while U.S. West Texas Intermediate futures were at $81.43 a barrel, up 1.2 per cent.

The price of gold was 0.2 per cent higher at $1,985.86 per ounce.