By Kevin Buckland
TOKYO (Reuters) – Asian stocks followed Wall Street higher on Thursday after the U.S. Federal Reserve said it would end bond-buying stimulus in March to set up three interest rate increases next year to tackle heated inflation.
Bond yields rose while the dollar stabilized after slumping overnight as havens fell out of favour. Gold gained along with crude oil.
“The economy no longer needs increasing amounts of policy support,” Fed Chair Jerome Powell said in a news conference after the conclusion of the two-day policy meeting.
Japan’s Nikkei climbed 1.67% and touched a three-week intraday high, while Taiwan’s benchmark gained 0.62%.
Mainland China shares slipped though, with an index of blue chips losing 0.12%.
MSCI’s broadest index of Asia-Pacific shares added 0.26%.
U.S. e-mini futures pointed to a 0.12% rise for the S&P 500, after it rallied 1.63% overnight to finish near a record high.
The Federal Open Market Committee (FOMC) laid out a scenario in which the COVID-19 pandemic, despite the emergence of the Omicron variant, gives way to a benign set of economic conditions, with inflation easing largely on its own, interest rates increasing comparatively slowly, and the unemployment rate staying low in coming years.
“The FOMC delivered a hawkish tilt for Christmas (but) markets seemingly have taken the tilt in their stride given three hikes were close to being priced into the meeting,” Tapas Strickland, a director of economics at National Australia Bank, wrote in a note to clients.
“Powell didn’t think the Fed was behind the curve” in fighting inflation, Strickland added. “Risk sentiment remains positive.”
Money markets see good odds for a first Fed hike by May, followed by more by September and December, although three quarter-point rate increases aren’t fully priced until February 2023.
Ten-year U.S. Treasury yields edged up to 1.4718%, adding to Wednesday’s advance.
Equivalent-maturity Australian government bond yields jumped 3.7 basis points to 1.617%.
The U.S. dollar index, which measures the currency against six major peers, was 0.02% higher at 96.399, stabilizing after a 0.21% loss overnight.
Gold rose 0.16% to $1,779.88.
U.S. crude and Brent each advanced about $1 to $71.85 and $74.78, respectively.
Attention now turns to policy announcements later Thursday from the European Central Bank and the Bank of England, which are also facing heated inflation.
The banks are trying to balance the need to support economies threatened by the coronavirus with the need to withdraw easy money to cool inflation.
The ECB is expected to dial back stimulus one more notch, but will pledge copious support for the next year, sticking to its long-held view that price pressures will abate on their own.
However, investors sharply increased their bets that the BoE is about to raise rates after a report on Wednesday showed British consumer price inflation surging in November to its highest in more than 10 years, exceeding all forecasts from economists.
Sterling eased to $1.32575 after climbing 0.28% overnight.
The euro slipped 0.07% to $1.1287 following Wednesday’s 0.34% jump.
(Reporting by Kevin Buckland, editing by Richard Pullin)
