Asian markets build on global rally as Fed pause hopes grow

Hong Kong – Asia extended a global markets rally Wednesday on a growing belief the Federal Reserve is finished with its interest rate hiking cycle, while optimism was also boosted by a report that China is considering a large burst of economic stimulus.

While uncertainty caused by the Israel-Hamas crisis is keeping nerves on edge, the mood on trading floors has improved after a healthy US jobs report last week and dovish comments from a number of top US monetary policymakers.

On Wednesday, Atlanta Fed boss Raphael Bostic said rates were already tight enough to bring inflation back down to officials’ two percent target, echoing some of his counterparts, who see a spike in Treasury yields as tempering the need to lift borrowing costs further.

The remarks were welcomed by many traders who feared that a series of hit readings on the US economy in recent weeks was putting pressure on the bank to announce one more increase before the end of the year.

Data suggested there was a more than 60 percent chance the Fed would stand pat in December, down from 60 percent for a hike seen just a week ago. 

All three markets on Wall Street posted another day of gains thanks to the more risk-on environment, while the so-called fear gauge hit a two-week low.

“A steady stream of dovish messaging from the Fed is just what the rally doctor ordered,” said Stephen Innes at SPI Asset Management.

He added that with 10-year US Treasury yields nearly 25 basis points down from their pre-jobs data level “there is a growing sense we have seen peak rates, but significantly, investors are strongly coming around to the idea that the Fed has finally reached the end of its aggressive rate hike runway”. 

In early Asian trade Tokyo, Sydney, Seoul, Taipei, Manila and Jakarta were all up.

Hong Kong piled on more than one percent and Shanghai was also enjoying a day in the sun after Bloomberg News reported that Chinese officials were looking at issuing almost $140 billion in sovereign debt to boost the beleaguered economy.

The cash would be spent on various projects in a bid to kickstart economic activity, which has been flat for most of the year, even after the lifting of draconian Covid containment rules at the end of 2022.

While not as big as the bazooka that was unveiled in 2008 during the financial crisis, the big-spending plan would provide a boost to investors who have been calling for more and wider support from the government after numerous targeted measures.

“The ad hoc issuance of additional debt from the central government could provide extra policy support and more resources to re-engineer a stronger and faster recovery,” Bruce Pang, at Jones Lang Lasalle, said.

“China’s recovery story could be a relay race” started by infrastructure investment that is then taken over by spending by businesses and consumers.

Oil prices edged up slightly as the market stabilised after Monday’s surge fuelled by Hamas’s deadly attack on Israel that sparked fears of a wider conflict in the crude-rich Middle East.

There had been a worry that Iran could be dragged into the crisis after claims it was involved in the assault. However, Tehran has denied the charges and the United States said it had no direct evidence linking Iran to the violence.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 0.5 percent at 31,917.48 (break)

Hong Kong – Hang Seng Index: UP 1.6 percent at 17,935.20

Shanghai – Composite: UP 0.4 percent at 3,088.29

Euro/dollar: DOWN at $1.0605 from $1.0609 on Tuesday

Dollar/yen: DOWN at 148.65 yen from 148.68 yen 

Pound/dollar: UP at $1.2293 from $1.2281 

Euro/pound: DOWN at 86.27 pence from 86.32 pence 

West Texas Intermediate: UP 0.1 percent at $86.04 per barrel

Brent North Sea crude: UP 0.2 percent at $87.78 per barrel

New York – Dow: UP 0.4 percent at 33,739.30 (close)

London – FTSE 100: UP 1.8 percent at 7,628.21 (close)