Asian shares made cautious gains on Thursday as investors scented a possible slowdown in the pace of U.S. rate hikes, lowering bond yields and restraining the dollar.
As expected, the U.S. Federal Reserve raised rates 75 basis points to 2.25-2.5% but did note some softening in recent data.
Fed Chair Jerome Powell sounded suitably hawkish on curbing inflation in his news conference, but also dropped guidance on the size of the next rate rise and noted that "at some point" it would be appropriate to slow down.
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"The Fed no longer feel behind the curve and can now assess the appropriateness of policy 'meeting by meeting'," said Elliot Clarke, a senior economist at Westpac.
"This is not to say that the rate-hike cycle is complete or even that a pause is coming, but risks look as though they are transitioning from being skewed to the upside to the downside."
The futures market still has 100 basis points of further tightening priced in by year-end, but also implies around 50 basis points of rate cuts over 2023.
Just the hint of a less aggressive Fed was enough to send MSCI's broadest index of Asia-Pacific shares outside Japan up 0.5%. Japan's Nikkei added 0.7% and South Korea 0.8%.
Yet shares of several major U.S. tech companies, including Meta Platforms, also slid after hours as poor quarterly results and outlooks underscored recession fears.
That saw Nasdaq futures dip 0.4%, having enjoyed their biggest daily gain since April 2020 on Wednesday, while S&P 500 futures eased 0.2%.
Attention now switches to data on U.S. gross domestic product for the second quarter where another negative reading would meet the technical definition of a recession, though the United States has its own method of deciding those.
Median forecasts are for growth of 0.5%, but the closely-watched Atlanta Fed estimate of GDP is for a fall of 1.2%.
In bond markets, two-year Treasury yields steadied at 2.990% after falling 6 basis points in the wake of the Fed meeting.
Although the yield curve steepened slightly, most of it remained inverted in a sign investors believe policy tightening will lead to an economic downturn and lower inflation.
"While central banks are still on track to continue tightening this year, it is increasingly likely that the most rapid pace of rate hikes may be behind us," said analysts at JPMorgan (NYSE:JPM) in a note.
"Falling commodity prices, notably excluding European natural gas, should offer some inflation relief, and the global economy outside of China is losing momentum."
In currencies, the dollar index held at 106.360 after losing 0.7% overnight as risk sentiment improved. It dipped to 136.18 yen and away from its recent peak of 139.38.
The euro hovered around $1.0200, having bounced 0.9% overnight, but faces stiff resistance at $1.0278.
The single currency still has an energy crisis to contend with as the IMF warned a complete cut-off of Russian gas to Europe by year-end may lead to virtually zero economic growth next year.
Russia has delivered less gas to Europe this week and warned of further cuts to come, boosting prices for gas and oil globally.
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U.S. crude added another 54 cents to $97.80 a barrel, having bounced 2.4% overnight, while Brent gained 32 cents to $106.94.
Spot gold was 0.3% firmer at $1,738 an ounce, having benefited from the dip in the dollar and bond yields. - investing