Asia shares make the most of Fed rate hikes, dollar slips on yen

Asian shares made guarded gains on Thursday as investors sensed a possible slowdown in the pace of US rate hikes, comforting bond markets and sending the dollar to a three-week low on the yen.

The US Federal Reserve surprised no one by lifting rates 75 basis points (bps) to 2.25-2.5 per cent on Wednesday, but did alter its statement to cite some softening in recent data.

Fed Chair Jerome Powell sounded suitably hawkish on curbing inflation in his news conference, but also dropped guidance on the size of the next rate rise and noted that "at some point" it would be appropriate to slow down.

"The Fed no longer feel behind the curve and can now assess the appropriateness of policy 'meeting by meeting'," said Elliot Clarke, a senior economist at Westpac.

"This is not to say that the rate-hike cycle is complete or even that a pause is coming, but risks look as though they are transitioning from being skewed to the upside to the downside," he added.

The futures market still has 100 bps of further tightening priced in by the year-end, but also implies around 50 bps of rate cuts over 2023.

Just the hint of a less-aggressive Fed was enough to send MSCI's broadest index of Asia-Pacific shares outside Japan up 0.7 per cent.

Japan's Nikkei added 0.3 per cent and South Korea 0.7 per cent. Chinese blue chips firmed 0.6 per cent, aided by reports of Beijing planning more support for a hard-hit property sector.

EUROSTOXX 50 futures also gained 0.6 per cent and FTSE futures 0.2 per cent.

Yet, the shares of several major US tech companies, including Meta Platforms, slid after hours as poor quarterly results and outlooks underscored recession fears.

That saw Nasdaq futures dip 0.4 per cent, having enjoyed their biggest daily gain since April 2020 on Wednesday, while S&P 500 futures eased 0.2 per cent.

Attention now switches to data on US gross domestic product for the second quarter where another negative reading would meet the technical definition of a recession, though the United States has its own method of deciding those.

Median forecasts are for growth of 0.5 per cent, but the closely-watched Atlanta Fed estimate of GDP is for a fall of 1.2 per cent.

Euro still lacks energy

In bond markets, two-year Treasury yields steadied at 3.00 per cent after falling 6 bps in the wake of the Fed meeting. Although the yield curve steepened slightly, most of it remained inverted in a sign investors believe policy tightening will lead to an economic downturn and lower inflation.

"While central banks are still on track to continue tightening this year, it is increasingly likely that the most rapid pace of rate hikes may be behind us," said analysts at JPMorgan, in a note.

"Falling commodity prices, notably excluding European natural gas, should offer some inflation relief, and the global economy outside of China is losing momentum," they added.

In currencies, the dollar index eased a fraction to 106.320 after losing 0.7 per cent overnight as risk sentiment improved. It also suffered a rare setback on the Japanese yen, falling 0.7 per cent to 135.54 as some investors decided to book profits on a host of long positions.

The euro hovered around $1.0204, having bounced 0.9 per cent overnight, but faces stiff resistance at $1.0278.

The single currency still has an energy crisis to contend with, as the IMF warned that a complete cut-off of Russian gas to Europe by year-end may lead to virtually zero economic growth next year.

Russia has delivered less gas to Europe this week and warned of further cuts to come, boosting prices for gas and oil globally. A drop in crude inventories and a rebound in gasoline demand in the United States also supported prices.

US crude rose another 92 cents to $98.18 a barrel, having bounced 2.4 per cent overnight, while Brent gained 75 cents to $107.37.

Spot gold was 0.2 per cent firmer at $1,737 an ounce, having benefited from the dip in the dollar and bond yields.

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