Bonds cheer Fed talk of cuts; Kiwi flies

SINGAPORE (Reuters) – Treasury yields and the dollar hit multi-month lows on Wednesday after a Federal Reserve official offered fresh hints about cutting U.S. interest rates, while the New Zealand dollar jumped after the central bank said another rate hike may be necessary. If inflation proves stubborn.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) briefly reached a one-week high, before weakness in Hong Kong technology stocks led to a 0.3% loss.

Japan’s Nikkei (.N225) fell 0.3%.

The New Zealand dollar rose in recent trading by 0.9%, after surpassing the resistance level to reach a four-month high of 62 US cents.

The euro, yen, pound sterling, Australian dollar, yuan, Swiss franc and a host of Asian emerging market currencies also reached new multi-month highs against the dollar, while gold rose to a seven-month high above $2,501 an ounce.

Federal Reserve Governor Christopher Waller — an influential voice and former hawk on the US central bank — told the American Enterprise Institute on Tuesday that interest rate cuts could begin within months, provided inflation continues to decline.

Fed funds futures rose on the statement to price in more than a hundred basis points of cuts in 2024 and a 40% chance of them starting as soon as March. Two-year Treasury yields fell sharply and touched new lows in the Asian session.

“The market moved clearly after Governor Waller opened up the possibility of cuts,” said Tapas Strickland, head of market economics at National Australia Bank in Sydney. Waller’s comments echoed previous comments made by Federal Reserve Chairman Jerome Powell.

The two-year bond yield reached its lowest level since mid-July at 4.69%, and the benchmark 10-year yield fell by 6 basis points to its lowest level since September at 4.28%.

The dollar fell in recent transactions by 0.2 percent to 147.15 yen, after trading earlier in the day at its lowest levels since September 12 at 146.68. It touched the lowest level in three and a half months at $1.1017 per euro.

Conditionality

Waller’s comments continue a two-week surge in stocks and bonds around the world since a moderate US inflation report two weeks ago – with the exception of China where doubts about the economy and a worsening real estate crisis have made investors decidedly pessimistic.

Global stocks (.MIWD00000PUS) rose nearly 9% in November and are on track for their best month in three years. The Hang Seng Index (.HSI) fell 0.4% and has not had a positive month since July.

The latest negative news came from Meituan (3690.HK) which pointed to slower growth in the fourth quarter for its core food delivery business. Its shares collapsed 12% to their lowest levels in three-and-a-half years on Wednesday, despite the company promising a $1 billion buyback.

The Hang Seng Index fell 2.4% on Wednesday. Hong Kong’s interbank rates have reached their highest levels in 23 years, suggesting cash is draining the Asian financial hub and hurting mortgage holders whose payments are often tied to one-month rates.

Mainland China’s blue-chip stocks (.CSI300) fell 1% and are on track for a fourth straight monthly decline with a 2.5% decline in November.

Some analysts are also concerned that markets have been swayed by parts of Fed officials’ comments – suggesting possible interest rate cuts – although the comments were conditional on further declines in inflation and financial conditions remaining tight.

New Zealand sounded a note of caution on Wednesday when the central bank raised its interest rate forecasts slightly and warned the hikes may not be over.

Economist Vishnu Varathan of Mizuho said: “Bets should be guided by the condition that policy is appropriately hawkish, and not indulge in abandoning overconfidence that the Fed has done so (based on linear expectations of lowering inflation).”

Elsewhere, Australian inflation fell more than expected.

In commodities, Brent crude futures settled at $81.63 a barrel ahead of a crucial OPEC+ meeting on Thursday to set production policy in the coming months, but prices are set for a monthly decline, while Singapore iron ore futures rose 9.6% in November at $130.50. Tons.

Our standards: Thomson Reuters Trust Principles.