Asian shares rise, dollar staggers after ‘dovish’ Powell comments

Investors will also watch the State of the Union speech from U.S. President Joe Biden, in which he will declare U.S democracy is bruised but “unbowed and unbroken” and cite progress in a post-pandemic economy after massive infrastructure and inflation bills passed in 2022.

In an eagerly awaited speech earlier on Tuesday, the Fed’s Powell reiterated that disinflation has begun but warned that Friday’s eye-popping jobs report showed why the battle against inflation will “take quite a bit of time.”

Those jobs figures showed a surprising addition of 517,000 new jobs in January, stoking fears that the tight labour market may compel the Fed to remain hawkish.

“It didn’t take much for markets to re-find their mojo after last Friday’s payrolls shock, just a speech from Fed Chair Powell, at which he was not materially more hawkish than he was after the recent FOMC decision,” said Rob Carnell, ING’s regional head of research, Asia-Pacific.

Last week, the Fed raised interest rates by 25 basis points and said it had turned a key corner in the fight against high inflation but projected “ongoing increases” in borrowing costs would be needed.

Powell’s comments on Tuesday that the economy would need more interest rate rises to keep inflation on a consistent downward track was not really a deviation from what had already been said, Carnell noted. “And equity markets saw that as an excuse to rally.” MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.51% higher, while Japan’s Nikkei lost 0.69%. Australia’s S&P/ASX 200 index rose 0.31%.

China’s shares was set to open 0.1% higher, while Hong Kong’s Hang Seng Index was 0.22% higher.

Asian shares tracked 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 hammer corporations for profiteering from the pandemic, and run through a wish list of economic proposals, the White House said, although many are unlikely to be passed by Congress. They include a minimum tax for billionaires, and a quadrupling of the tax on corporate stock buybacks.

In the currency market, the dollar pulled back a bit after the speech. The dollar index, which measures the U.S. currency against six major rivals, was at 103.30, having dropped to as low as 102.99 in the previous session.

The Japanese yen was flat at 131.08 per dollar, after surging 1.2% in the previous session.

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

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

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

(Editing by Sam Holmes)