Asian shares up on Fed optimism, sterling firms ahead of expected BOE hike

TOKYO (Reuters): Asian shares inched higher on Thursday after the US Federal Reserve said economic growth was solid, virtually cementing the case for a December rate rise even as investors braced for what is expected to be the Bank of England’s first hike in more than 10 years.

Futures hinted at weaker openings for European bourses, with European stock futures down 0.2% while Dax futures and FTSE futures each shed 0.3%. CAC futures down 0.1%.

Investors were wary as they awaited the nomination of the next head of the US central bank, as well as a tax bill from squabbling Republicans in the US House of Representatives. Both were expected later in the session.

After a one-day delay, the tax plan is said to include $6 trillion in tax cuts over 10 years but is unlikely to define how these would be offset as Republicans remain split over how to pay for them.

The BoE is expected to raise rates later in the session (1200 GMT) to tamp down inflation, which has picked up to a five-year high despite weakening economic growth.

But most economists polled by Reuters say a rate hike now would be a mistake as uncertainty builds ahead of Britain’s planned departure from the EU in March 2019.

Sterling firmed 0.2% to $1.3282 ahead of the decision.

MSCI’s broadest index of Asia-Pacific shares outside Japan was nearly flat in late afternoon trade, after earlier climbing to its highest levels since November 2007.

Australian shares touched a two-and-a-half year high in early trade but reversed gains to close down 0.1%.

China’s blue-chip CSI300 index was down 0.2%, while the Shanghai Composite Index shed 0.4%.

Japan’s Nikkei stock index finished up 0.5% at its highest close since late June 1996, gaining 2.4% in a holiday-shortened week. Japanese markets will be closed for a national holiday on Friday.

US S&P e-mini futures were down 0.2%.

The White House plans to nominate current Fed Governor Jerome Powell as the next chair when Janet Yellen’s term expires in February, a source familiar with the matter said on Wednesday.

Powell’s nomination, which would need to be confirmed by the Senate, is expected later on Thursday before President Donald Trump leaves on a trip to Asia.

Rising expectations that Trump will tap Powell, who is seen as more dovish on interest rates, have pressured US Treasury yields and kept the dollar on the backfoot this week.

On Wednesday, Wall Street posted modest gains after the Fed held policy steady as expected and underscored solid US economic growth as well as a strengthening labor market, while downplaying the impact of recent hurricanes.

Investors took that as a sign the US central bank is on track to resume raising rates next month, with federal fund futures putting the odds of a December rate hike at about 98%, according to CME Group’s FedWatch program.

In addition to the Fed’s encouraging assessment, the ADP National Employment Report showed that private employers hired 235,000 workers in October, the most in seven months.

On Friday, the Labor Department’s nonfarm payrolls report is expected to show growth of 303,000 jobs in October, compared to a drop of 40,000 the month before. Total non-farm employment is expected to have increased by 312,000, according to economists polled by Reuters.

US Treasury yields fell further on Wednesday and the yield curve was its flattest since 2007 after the Treasury Department said it would keep auction sizes steady in the coming months, despite the Fed’s plan to reduce its bond holdings.

Benchmark 10-year note yields were at 2.359% in Asian trading, compared to their US close of 2.376% on Wednesday, when they dipped as low as 2.349%.

The dollar index, which tracks the greenback against a basket of six major rivals, slipped 0.3% to 94.533.

The dollar pulled back 0.3% against the yen to 113.89, moving away from its more than three-month high of 114.45 yen touched last Friday.

The euro was 0.3% higher at $1.1655, remaining about its three-month low of $1.1574 touched on Friday, a day after the ECB said it will extend its bond purchases into September 2018.

Crude oil futures steadied, with Brent crude up 7 cents at $60.56 per barrel and US crude down 1 cent at $54.29.

While oil settled lower on Wednesday after weekly US government inventory data showed the latest crude stock draw was not as big as an industry trade group had reported, both Brent and US crude futures remain near their highest levels since July 2015 as lower global supply pushed markets higher. 

Fed keeps rates unchanged, remains 

on road to December hike

WASHINGTON (Reuters): The Federal Reserve kept interest rates unchanged on Wednesday and pointed to solid US economic growth and a strengthening labor market while playing down the impact of recent hurricanes, a sign it is on track to lift borrowing costs again in December.

Investors had all but ruled out a rate hike at the central bank’s policy meeting this week and attention has largely been focused on who will be in charge of monetary policy at the end of Fed Chair Janet Yellen’s first term in February 2018.

President Donald Trump is set to announce his nomination on Thursday afternoon with Fed Governor Jerome Powell, a soft-spoken centrist who has supported Yellen’s gradual approach to raising rates, seen as having a lock on the job.

“The labor market has continued to strengthen and ... economic activity has been rising at a solid rate despite hurricane-related disruptions,” the Fed’s rate-setting committee said in a statement after its unanimous policy decision.

In keeping with that encouraging tone, the central bank’s policymakers acknowledged that inflation remained soft but did not downgrade their assessment of pricing expectations.

US Treasury yields and short-term interest rate futures were little changed after the release of the statement, while federal fund futures put the odds of a December rate hike at about 98 percent, according to CME Group’s FedWatch program.

The US dollar pared gains against a basket of currencies and the S&P 500 index rose slightly.