Asian stocks rise, dollar tumbles after ‘dovish’ Powell comments

By Ankur Banerjee

SINGAPORE (Reuters) – Asian stocks rose as the dollar faltered on Wednesday after Federal Reserve Chair Jerome Powell’s comments were less hawkish than feared, raising risk appetite and investors’ hopes of monetary easing soon boost central bank.

Investors will also follow US President Joe Biden’s State of the Union address, in which he declared US democracy wounded but “unbowed and unbroken” and progress in a post-pandemic economy following the passage of massive infrastructure and… inflation laws in 2022.

In a much-anticipated speech on Tuesday, the Fed’s Powell reiterated that disinflation had begun, but cautioned that Friday’s stunning jobs report showed why the fight against inflation “is going to take quite a long time.”

Those jobs numbers showed a surprise increase of 517,000 jobs in January, fueling fears that the tight labor market could force the Fed to remain hawkish.

“It didn’t take much for markets to regain their mojo after last Friday’s wage shock, just a speech by Fed Chair Powell, where he wasn’t significantly more hawkish than he was after the recent FOMC decision,” said Rob Carnell, regional research director by ING, Asia Pacific.

Last week, the Fed raised interest rates by 25 basis points and said it had made a decisive turnaround in the fight against high inflation but forecast “ongoing increases” in borrowing costs were needed.

Powell’s comments Tuesday that the economy needs more rate hikes to keep inflation on a steady downward path are not really a departure from what has already been said, Carnell noted. “And the stock markets saw that as an excuse to rally.”

MSCI’s broadest index of Asia-Pacific stocks outside of Japan rose 0.51%, while Japan’s Nikkei lost 0.69%. Australia’s S&P/ASX 200 index rose 0.31%.

China’s stocks were expected to open 0.1% higher, while Hong Kong’s Hang Seng Index was up 0.22%.

Asian stocks followed Wall Street, which ended higher in choppy trading as investors digested Powell’s speech. [.N]

In his State of the Union address, Biden is expected to pound on businesses for profiting from the pandemic and go through a wish-list of economic proposals, the White House said, though many are unlikely to pass Congress. These include a minimum tax for billionaires and a quadrupling of the tax on corporate share buybacks.

On the forex market, the dollar retreated somewhat after the speech. The dollar index, which measures the US currency against six major rivals, was at 103.30 after falling as low as 102.99 in the previous session.

The Japanese yen was unchanged at 131.08 per dollar after rising 1.2% in the previous session.

The kiwi was up 0.02% to $0.63265, while the Aussie was up 0.11% to $0.69675 after rising more than 1% on Tuesday.

Oil prices rose early Wednesday, extending gains from the previous two days, with Brent crude futures up 11 cents, or 0.1%, to $83.80 a barrel, for a 3.3% gain in the contributed to the previous session.

U.S. West Texas Intermediate (WTI) crude oil futures rose 13 cents, or 0.2%, to $77.27 a barrel after rising 4.1% in the previous session. [O/R]

(editing by Sam Holmes)

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