(Bloomberg) — Asian equities were primed to rally Thursday after US stocks touched fresh highs as the Federal Reserve indicated it would meet market expectations with three rate cuts this year.
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Australian shares and equity futures for Japan and Hong Kong all advanced. Japanese stocks are set to re-open after a holiday Wednesday. The S&P 500 index rose 0.9% to a new high while the tech-heavy Nasdaq 100 index, which is more sensitive to policy, rose 1.2%.
The Magnificent Seven group of mega-caps powered to new highs. US small-caps, which typically do well when the economy is expanding, rose almost 2% for the best session in more than a month.
Australian and New Zealand bonds rallied, echoing a rise in Treasuries. Gains were tilted toward the short end with two-year yields falling eight basis points and the 10-year falling by two basis points. The moves reflected an increase in expectations the Fed may cut as early as June. The dollar extended losses.
Policymakers kept their outlook for three cuts in 2024 and moved toward slowing the pace of reducing their bond holdings, suggesting they aren’t alarmed by a recent uptick in inflation. While Jerome Powell continued to highlight officials would like to see more evidence that prices are coming down, he also said it will be appropriate to start easing “at some point this year.”
“Asian markets are likely to see a wave of relief rally as traders gain confidence from a clearer view of the near-term picture,” said Hebe Chen, an analyst at IG Markets in Melbourne. “This enhanced sense of certainty is likely to be particularly appreciated by the Japanese market.”
The Bloomberg dollar index extended losses after falling 0.4% Wednesday as Treasury yields slipped, paring a recent rally. The yen pared an intraday loss against the greenback early Thursday after declines in the prior session to trade at around 151 per dollar.
The New Zealand dollar also reversed earlier losses as gross domestic product data showed the country unexpectedly fell into a recession in the second half of 2023. Output in the fourth quarter contracted 0.1% to mark its second quarter of negative growth.
In Asia, Japan trade data is due, as is PMI data for India and Japan, and inflation for Hong Kong. Taiwan will hand down a monetary policy decision.
Read More: Stocks Will Lose Steam Even as Fed Signals Rate Cuts: MLIV Pulse
In corporate news, shares in Micron Technology Inc., the largest US maker of computer memory chips, jumped in late trading on a surprisingly strong revenue forecast. Elsewhere, Tencent Holdings Ltd. plans to raise its stock buyback program to at least $12.8 billion this year.
Gold rallied around 1% higher to trade over $2,200 an ounce for the first time following the Fed comments. A lower interest rate environment is typically positive for the precious metal, which doesn’t generate interest. Meanwhile, Bitcoin stemmed a recent decline to advance near $68,000. West Texas Intermediate, the US oil price, rose after a Wednesday drop.
Key events this week:
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Eurozone S&P Global Services PMI, S&P Global Manufacturing PMI, Thursday
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Bank of England rate decision, Thursday
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US Conference Board leading index, existing home sales, initial jobless claims, Thursday
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Nike, FedEx earnings, Thursday
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Japan CPI, Friday
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Germany IFO business climate, Friday
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Atlanta Fed President Raphael Bostic speaks, Friday
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ECB’s Robert Holzmann and Philip Lane speak, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures rose 0.3% as of 8:35 a.m. Tokyo time
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Hang Seng futures rose 0.8%
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Australia’s S&P/ASX 200 rose 1%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro rose 0.1% to $1.0935
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The Japanese yen rose 0.3% to 150.85 per dollar
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The offshore yuan was little changed at 7.2081 per dollar
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The Australian dollar was little changed at $0.6592
Cryptocurrencies
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Bitcoin rose 1.2% to $67,885.98
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Ether rose 1.8% to $3,524.88
Bonds
Commodities
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West Texas Intermediate crude rose 0.4% to $81.58 a barrel
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Spot gold rose 0.8% to $2,203.33 an ounce
This story was produced with the assistance of Bloomberg Automation.
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