Asian markets surge on Fed rate hopes

HONG KONG - Asian markets rallied on Friday on hopes that the United States Federal Reserve will decide against lifting interest rates this month as officials assess the impact of more than a year of tightening.

Hong Kong led the way, soaring more than 4 per cent, thanks to a rally in tech firms and after an extended period of losses fuelled by worries over China’s opaque economic outlook.

Tokyo, Shanghai, Sydney, Seoul, Taipei, Mumbai, Bangkok and Manila were also deep in positive territory. Singapore was closed for a public holiday.

This comes after Wall Street and European markets ended with healthy gains on Thursday. London, Paris and Frankfurt extended their rally at the open and US futures were also up.

With US default worries out of the way after senators passed a debt ceiling Bill for President Joe Biden to sign following months of wrangling, attention has returned to the central bank’s drive to defeat decades-high inflation.

Traders welcomed data on Thursday that showed private hiring slowed in May – albeit at a slower pace than forecast – and wage growth eased for a second straight month.

Monetary policy officials have said a softer labour market and much lower inflation were key to the bank being able to stop lifting borrowing costs.

“Wage-driven inflation may be less of a concern for the economy despite robust hiring,” said Ms Nela Richardson of payroll firm ADP. “This is the second month we’ve seen a full percentage point decline in pay growth for job changers.”

Expectations were already running high that the Fed will hold its horses on rates for the first time in more than a year when it meets later in June, but comments from two officials added to the optimism.

Philadelphia Fed President Patrick Harker urged policymakers to “at least skip this meeting in terms of an increase”.

And Fed governor Philip Jefferson, who has been put forward as a vice-chair and who regularly chimes with chairman Jerome Powell, said holding fire would allow for an assessment of the impact of past rates but not signal a pause.

Analysts said there was now a 24 per cent chance of a hike, compared with 69 per cent priced in last Friday, while bets on a July increase were also falling.

But some at the Fed remain in favour of another increase, including St Louis Fed boss James Bullard, who thinks rates are in the lower band of where they need to be to tackle prices.

“With the core of the (policy) committee seemingly on board with a June skip, the dovish Fed repricing of the June... meeting catalysed a modest move higher in global equities, some dollar weakness, gold upside and even a rally in beleaguered oil markets,” said SPI Asset Management’s Stephen Innes.

“The good news for risk markets is the Fed seldom, if ever, surprises the market Fed expectation pricing going into a meeting.” AFP