Stocks rose in Asia, dollar fell on Powell’s “de-inflation” remarks

SINGAPORE, Feb 2 (Reuters) – Asian shares rose after Federal Reserve Chairman Jerome Powell said deflation was underway and investors hoped U.S. interest rate hikes would end soon. It increased on Thursday. .

MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) was 0.91 percent higher on Thursday. The index is up nearly 11 percent for the year after falling nearly 20 percent last year, its best January performance since 2012.

Japan’s Nikkei (.N225) rose 0.10%, while Australia’s S&P/ASX 200 (.AXJO) was 0.14% higher. Chinese shares (.SSEC) were 0.11% higher, while Hong Kong’s Hang Seng Index (.HSI) was up nearly 1%.

Futures showed that European stocks are likely to continue their gains, with Eurostoxx 50 futures up 0.74%, German DAX futures up 0.74% and FTSE futures up 0.46%.

After a year of more hikes, the US Federal Reserve expected to raise interest rates by 25 basis points, saying it has become a key corner in the fight against high inflation. But policymakers predicted that “sustained increases” in borrowing costs would still be needed.

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However, the market got a very bad clue from Powell’s comments at a press conference about the ongoing “disinflation” trend. That helped the S&P 500 and Nasdaq close sharply higher overnight.

Ali Hassan, portfolio manager and managing director of Thornburg Investment Management, said at his news conference that Powell appeared to be left out of easier financial conditions. “It was a green light that the market could buy without feeling like it was fighting the Fed.”

The prospect of a less aggressive pace of monetary tightening has raised expectations for a so-called soft landing — a scenario in which inflation declines against a backdrop of weak but resilient economic growth.

Powell said on Wednesday that his hopes for a soft economic landing remain alive, despite the sharp rise in interest rates.

“From here, the data will carry more weight than what he (Powell) says,” said Charu Chanana, market strategist at Saxo Markets in Singapore.

So, risk will potentially increase until the economic data surprises, upsetting the soft landing narrative that the market has been relying on.

BOE, ECB and income

The focus will now shift to the European Central Bank (ECB) and Bank of England (BOE) meetings scheduled for Thursday and the interest rate path the two central banks are likely to take.

Saxo Markets strategists say the European Central Bank has been outpacing its peers in terms of hawkishness recently and is likely to do so again this week. They said the BOE would likely be the most complicated option to predict uncertain market prices, as well as the basis for a split vote.

In the corporate world, Meta Platforms Inc ( META.O ) this year unveiled tighter cost controls and a new $40 billion share buyback, with CEO Mark Zuckerberg calling 2023 a “year of productivity.”

Meta shares rose in after-market trading, leading Nasdaq futures up 1 percent. E-mini futures for the S&P 500 rose 0.34 percent. All eyes will be on Apple ( AAPL.O ) and Amazon ( AMZN.O ) earnings later Thursday.

In the currency market, the dollar jumped following Powell’s comments, and the U.S. dollar index, which measures the currency against six major peers, fell to a nine-month low of 100.80 on Wednesday. The last hour was 100.89 on Thursday.

The euro rose 0.27 percent to $1.1019. The yen strengthened 0.41% to 128.43 per dollar, while sterling last traded at $1.2388, up 0.10% on the day.

Gold rose 0.2 percent to $1,953.44 an ounce, having previously hit a nine-month high of $1,957 an ounce.

U.S. West Texas Intermediate (WTI) crude oil rose 1.06 percent to $77.22 a barrel, while Brent rose 0.91 percent to $83.59 on the day.

Ankur Banerjee’s report; Edited by Simon Cameron Moore

Our Standards: The Thomson Reuters Trust Principles.

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