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SINGAPORE : Asian stocks briefly made one-week highs on Wednesday, bonds rallied and the dollar sank on new hints at U.S. interest rate cuts, while the New Zealand dollar jumped after its central bank said another hike may be necessary if inflation proves stubborn.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent in early trade before weakness in Hong Kong tech shares dragged it back to flat.
Japan’s Nikkei fell 0.2 per cent. The New Zealand dollar was last up 1.1 per cent at a four-month high of $0.6207, having blown past resistance.
The U.S. dollar, meanwhile, slid to fresh multi-month lows on the euro, yen, sterling, the Australian dollar, yuan and Swiss franc. Gold hit a seven-month high above $2,051 an ounce.
Overnight Fed Governor Christopher Waller – an influential and previously hawkish voice at the U.S. central bank – told the American Enterprise Institute that rate cuts could begin in a matter of months, provided inflation keeps falling.
Fed funds futures rallied on the remark to price more than hundred basis points of cuts in 2024 and 40 per cent chance they begin as soon as March. Two-year Treasury yields fell sharply and along with the dollar fell further still in Asia.
“The market clearly moved on Governor Waller’s opening up the possibility of cuts,” said Tapas Strickland, head of market economics at National Australia Bank in Sydney. Waller’s remark echoed earlier comments made by Fed Chair Jerome Powell.
The two-year yield hit its lowest since mid-July at 4.70 per cent and the benchmark 10-year yield fell 4 bps to its lowest since September at 4.30 per cent.
The dollar was last down 0.5 per cent at 146.68 yen, its lowest since Sept. 12 and a drop of nearly 2 per cent in three days. It touched a 3-1/2 month low at $1.1017 per euro.
Waller said that if the decline in inflation continues, “for several more months … three months, four months, five months … we could start lowering the policy rate just because inflation is lower.”
“There is no reason to say we will keep it really high,” he said.
CONDITIONALITY
Waller’s remarks extended what has been a two-week rally in stocks and bonds around the world since a benign U.S. inflation report two weeks ago – except in China where doubts about the economy have investors decidedly downbeat.
Global stocks are up almost 9 per cent in November and are tracking toward their best month in three years. The Hang Seng is flat and hasn’t posted a positive month since July.
The latest negative news came from Meituan which flagged slowing fourth-quarter growth for its mainstay food delivery business. Shares fell 8 per cent to a 3-1/2 year low on Wednesday, despite the company promising a $1 billion buyback.
The Hang Seng fell 0.9 per cent on Wednesday. Mainland blue chips fell 0.4 per cent and are heading for a fourth monthly decline in a row with a 1.9 per cent fall in November.
Some analysts are also wary that markets have run with parts of Fed officials’ remarks – flagging possible rate cuts – even though the comments have been conditional on further declines in inflation and on financial conditions staying restrictive.
New Zealand sounded something of a warning note on Wednesday when the central bank slightly lifted its interest rate projections and warned hikes may not be over.
“Bets ought to be guided by conditionality that policy is appropriately tight, not indulged with abandon on over-confidence that Fed is done (premised on linear projections of dis-inflation),” said Mizuho economist Vishnu Varathan.
Elsewhere Australian inflation eased by more than expected. In commodities Brent crude futures steadied to $81.75 a barrel but were set for a monthly drop, while Singapore iron ore futures are up 9.6 per cent in November at $130.50 a tonne.
(Editing by Simon Cameron-Moore)
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