Sydney - Stocks, bonds and commodities
were all on a roll in Asia on Thursday, as bulls scented a
softening in the Federal Reserve's confidence on inflation that
promised to keep US interest rates low for longer than some
had expected.
MSCI's broadest index of Asia-Pacific shares outside Japan
climbed 0.9 percent to heights not seen since
December 2007. It has gained over 5 percent so far this month.
South Korea and Japan's Nikkei both added
0.2 percent, while Australia put on 0.3 percent. Stocks
in the Philippines were at a one-year peak and Hong
Kong's Hang Seng index added 0.3 percent to push above
27,000.
But worries about tighter regulations nudged China's
blue-chip CSI300 index down 0.7 percent, though data
showed a pick up in profit growth for industrial firms.
The latest rush for risk came after the Fed left US rates
unmoved as expected on Thursday, and tweaked its wording on
inflation.
The market seized on the fact that the central bank noted
that both overall and core inflation had declined, and it
removed the qualifier "recently," perhaps suggesting concerns
the slowdown might not be temporary.
The Fed also said it expected to start winding down its
massive holdings of bonds "relatively soon," cementing
expectations of a September start.
While that would be an effective tightening in financial
conditions it might also lessen the need for actual hikes in
rates, which matter more for currency valuations.
"The dollar's biggest problem is it can't expect help from
the Fed for a long time," said Alan Ruskin, global head of forex
at Deutsche.
"In the short-term we are still in a risk-favourable loop,
whereby subdued goods and services inflation supports a well
behaved bond market and asset inflation. It's just another day
in paradise."
A Reuters poll showed most primary dealers, the banks
authorized to trade directly with the Fed, still see the Fed's
next rate rise in December. But Fed funds rate futures are
pricing in less than 50 percent chance of a hike by then,
compared to more than 50 percent before the Fed's
meeting.
Yields on US 10-year benchmark US Treasuries fell 5
basis points and were last at 2.278 percent. The
dollar followed, falling to a 13-month trough against a basket
of currencies of 93.322.
The euro, which had been bumping up against a 23-month top
for most of the week, finally broke through to reach $1.1750
, its highest since January, 2015.
The next major chart target was the 200-week average at
$1.1807 - a measure the euro has not traded above since August
2014.
The dollar was fast approaching the 200-week barrier on its
Canadian counterpart, and had breached that technically
important level on the Australian dollar.
The dollar even fell back against the yen to 110.875,
though the damage was somewhat limited by expectations the Bank
of Japan would keep its super-easy policies in place longer than
most other global central banks.
The prospect of US policy staying stimulative saw Wall
Street's fear gauge touch a record low as stocks notched
record closing highs. The Dow ended Wednesday up 0.45
percent, while the S&P 500 added 0.03 percent and the
Nasdaq 0.16 percent.
The declining US dollar boosted commodities priced in the
currency. Spot gold hit a six-week high and was last
trading at $1,263.80, while copper reached territory not
trod since May 2015.
Oil prices neared eight-week highs as a surprisingly sharp
drop in US inventories encouraged speculation a global crude
glut would recede.
A bout of profit-taking in Asia on Thursday saw Brent crude
futures ease 6 cents to $50.91 a barrel, while US crude dipped 7 cents to $48.68.