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TOKYO (Reuters): Asian stocks advanced on Thursday, tracking a surge on Wall Street, after the chairman of the US Federal Reserve suggested it may nearing an end to its three-year rate tightening cycle, boosting interest in riskier assets.
The dollar struggled and US Treasury yields dipped after Jerome Powell said on Wednesday that US policy rates were “just below” neutral, less than two months after saying rates were probably “a long way” from that point.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8%.
The Shanghai Composite Index edged up 0.2%, Australian stocks gained 0.5% and Japan’s Nikkei climbed 0.9%.
However, gains in Asia were tempered by investor jitters ahead of high-stakes trade talks between US President Donald Trump and his Chinese counterpart Xi Jinping on Saturday on the sidelines of the G20 summit in Argentina.
Economists at ANZ pointed out that policy hawks in the Trump administration who want Washington to take a tough stance against Beijing appear to be in the ascendancy.
“They will want some concessions from China, not least of all on what they perceive is theft of intellectualproperty and forced technology transfer,” wrote the ANZ economists.
“Thus, it would seem the prospect of the Trump-Xi meeting ending without a sustainable resolution to their differences is relatively high.”
Analysts believe any signs of a thaw in US-China tensions could trigger a knee-jerk rally but say the move would likely be short lived unless there are substantive compromise from both sides — most notably if Xi can persuade Trump to postpone a sharp tariff hike on Chinese goods due to take effect Jan. 1.
The Dow meanwhile rallied 2.5% and Nasdaq surged nearly 3% on Wednesday as Powell’s comments eased fears of a faster pace of rate hikes in 2019.
“Equities gained as Powell hinted of implementing fewer rate hikes when the economy is still doing well,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.
“The likelihood of slower US monetary tightening caused the dollar to slump against currencies, particularly the euro, which could soon benefit from an ECB rate hike.”
The euro was a shade higher at $1.1374 after advancing 0.7% the previous day.
The dollar dipped 0.2% to 113.46 yen after being knocked down from a two-week high above 114.00 scaled overnight.
The Australian dollar, sensitive to shifts in broader risk sentiment, jumped more than 1% on Wednesday and last stood little changed at 0.7302.
The dollar index against a basket of six major currencies was effectively flat at 96.805 following an overnight loss of 0.6%.
The US two-year Treasury yield extended a modest decline from the previous day following Powell’s comments. The yield was down about 1 basis point at 2.796%.
