Asian shares rally after Yellen signals Fed won't rush to raise rates, STI up 0.7%

A man looks at a share price board of the Tokyo Stock Exchange in Tokyo.
A man looks at a share price board of the Tokyo Stock Exchange in Tokyo. PHOTO: AFP

SYDNEY (REUTERS) - Asian shares scaled a two-year top on Thursday (July 13) as investors wagered that policy tightening in the United States would be glacial at best, lifting Wall Street to record peaks and lowering bond yields almost everywhere.

The star performer was the Canadian dollar, which rocketed to 11-month highs after the country's central bank hiked rates for the first time in seven years and left the door wide open to further moves.

Yet the overall mood was one of relief that Federal Reserve chair Janet Yellen had not sounded more hawkish in her appearance before Congress, a green light for risk taking.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.45 per cent to its highest since mid-2015.

Japan's Nikkei firmed 0.4 per cent and Australia's main index jumped 1 per cent.

Singapore's Straits Times Index was up 0.66 per cent to 3,229.96 as at 9.20am.

On Wall Street overnight, the Dow rose 0.57 per cent, while the S&P 500 gained 0.73 per cent and the Nasdaq 1.10 per cent. The rate-sensitive S&P 500 real estate index jumped 1.3 per cent, its biggest gain in about four months.

Stocks were underpinned by a drop in bond yields as Dr Yellen sounded cautious on inflation and noted the Fed would not need to raise rates "all that much further" to reach current low estimates of the neutral funds rate.

"The market did perceive a greater degree of anxiety over inflation - at the margin," said Westpac's US economist Elliot Clarke. "To our mind, this is unlikely to get in the way of another hike this year."

"Two further hikes in 2018 will likely be justified by conditions. However, the case for additional hikes thereafter is nowhere near being made."

Indeed, markets doubt even that modest tightening will ensue and imply only a 50-50 chance of a rise by December. Treasuries rallied in reaction, with yields on two-year notes falling to three-week lows, as did bonds in Europe.

The odd man out was Canada, where yields hit their highest since late 2013 after the Bank of Canada raised rates a quarter point, saying the economy no longer needed as much stimulus.

The Canadian dollar notched its biggest percentage gain since March 2016 and was last trading near one-year peaks at C$1.2748.

Moves elsewhere were mixed, with the US dollar gaining ground on the euro only to lose on the yen. In early trading Thursday, the euro had steadied at US$1.1418 while the dollar sat at 113.32 yen.

Against a basket of currencies, the dollar was holding just above nine-month lows at 95.793.

The drop in US yields benefited gold, which pays no interest, and nudged the precious metal up to US$1,218.35 and away from its recent trough of US$1,204.45.

Oil prices faded as a report showing hefty drawdowns in US crude inventories was offset by data pointing to lacklustre gasoline demand.

Brent crude futures were off 13 cents at US$47.61 a barrel, while US crude lost 10 cents to US$45.39.