Asian stocks scaled 19-month peaks on Wednesday thanks to a record-setting night on Wall Street after Federal Reserve Chair Janet Yellen flagged a possible interest rate hike next month, keeping the dollar in pole position near three-week highs. Yellen said on Tuesday that the Fed will probably need to raise interest rates at an upcoming meeting, and that delaying rate increases could leave the Fed’s policymaking committee behind the curve. MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.8 percent, rising to its highest since July 2015. Australian stocks climbed 1 percent, South Korea’s Kospi tacked on 0.4 percent and Hong Kong’s Hang Seng advanced 1 percent. Japan’s Nikkei added 1.2 percent, buoyed by a weaker yen. “The market took heart from Yellen’s comments and such positive sentiment will likely last throughout the day,” said Takuya Takahashi, a strategist at Daiwa Securities.
Yellen’s comments helped push Wall Street indexes to record highs overnight by boosting U.S. bank stocks. “Fundamentally, the U.S. banks are simply being used as a vehicle to express reflation and ‘Trumponomics’,” wrote Chris Weston, chief market strategist at IG in Melbourne. “Although last night really belonged to Janet Yellen whose prepared comments that waiting too long to tighten would be ‘unwise’ and a further review its policy stance will take place at its upcoming meetings.” In currencies, the dollar index against a basket of major currencies stood at 101.260, near a three-week high of 101.380 scaled overnight as investors added to bets of the Fed hiking interest three times this year following Yellen’s comments.
U.S. interest rate futures implied traders saw about a 41 percent chance of at least three rate increases in 2017, up modestly from a 33 percent chance on Monday, CME Group’s FedWatch program showed. The greenback was a shade higher at 114.380 yen after gaining about 0.5 percent the previous day, when it rose to a two-week high of 114.500. The euro inched down to $1.0575 after slipping to a one-month trough of $1.0561 overnight. The dollar was supported as U.S. Treasury yields rose on the Fed Chair’s comments, with the benchmark 10-year note yield climbing about four basis points to an 11-day high the previous day.
While the Japanese yen pulled back against the dollar, emerging market currencies like the South Korean won, Thai baht and Singapore dollar managed to hold mostly steady against the U.S. currency. The stronger dollar, which puts non-U.S. buyers of dollar-denominated commodities at a disadvantage, weighed on crude oil prices. U.S. crude was down 0.6 percent at $52.89 a barrel and Brent shed 0.5 percent to $55.68 a barrel. Crude already came under pressure the previous day on evidence of surging U.S. stockpiles.
Spot gold was off 0.1 percent to $1,226.00 an ounce. Copper on the London Metal Exchange rose 0.6 percent to $6,058 a tonne. The metal has enjoyed support recently following a strike at the world’s biggest copper mine in Chile that took it to a 1-1/2-year high above $6,200 a tonne on Monday.