(Bloomberg) -- Stocks in Asia gained after Wall Street extended its rally on Tuesday, with traders shrugging off warnings from policymakers trying to rein in expectations for Federal Reserve rate cuts.
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Shares rose at the open in South Korea and Japan, with Australia’s equity benchmark also trading higher. Futures for Hong Kong pointed to solid gains in early trading. The Nasdaq 100 and blue-chip Dow Jones Industrial Average set all-time highs Tuesday, while the S&P 500 added 0.6%, fast approaching a record.
Atlanta Fed President Raphael Bostic said there was no urgency to lower rates but this did little to dent market expectations. Speculation of Fed easing is making investors the most optimistic since the beginning of 2022, a Bank of America Corp. survey showed Tuesday. Traders have also been liquidating bets on higher short-term US yields as investors reel back from the urge to fight the dovish pivot.
Treasuries steadied in Asian trading after clinging onto gains Tuesday, with yields on the US 10-year note hovering at 3.91%. The dollar was little changed against all its Group-of-10 counterparts.
Japan’s exports slipped for the first time in three months in November, in a fresh sign that the economic recovery is sputtering. Meanwhile, the Bank of Japan’s decision to hold the world’s last negative interest rate drove the yen down for a fourth day, the longest losing streak since mid-November. The currency tumbled by the most since late October on Tuesday.
The yield on Japan’s 10-year government bond dropped below 0.6% for the first time since August, as speculation eased about the central bank’s near-term exit from its negative interest rate.
Markets are going all in for the global monetary policy pivot, pricing in numerous rate cuts by the Fed and other major central banks, which are very unlikely to occur, according to Win Thin, global head of currency strategy at Brown Brothers Harriman & Co.
“That said, this market pricing of a huge global monetary policy pivot is helping the dollar get some limited traction,” he wrote in a note. “When all is said and done, however, growth differentials remain clearly in favor of the US and so it’s really hard to make a strong bullish case for the foreign currencies.”
Richmond Fed President Thomas Barkin reinforced the more dovish tone, suggesting the US central bank would lower interest rates if recent progress on inflation continued. However, other policymakers have pushed back more aggressively against rate cut bets. Chicago Fed President Austan Goolsbee and the Cleveland Fed’s Loretta Mester suggested Monday that the expectations were premature.
The Fed’s messaging drew criticism from economist Mohamed El-Erian who warned that the central bank was letting the market control the narrative on interest rates.
“Fed communication confuses people,” the president of Queens’ College, Cambridge, and a Bloomberg Opinion columnist told Bloomberg Television. “I think we have a real problem.”
“This Fed seems willing to be bullied,” he said.
Investors are waiting for data readouts from the US, including Wednesday’s existing home sales, Thursday’s third quarter gross domestic product print and Friday’s durable goods orders and personal consumption expenditures — the Fed’s preferred measure of inflation — to firm up their rate bets.
Data on Tuesday showed an unexpected surge in new US home construction in November as builders continued to benefit from a limited supply of existing home sales.
Oil rose a third day as traders and shippers braced for the prospect of more disruption in the Red Sea. Gold held two days of gains.
Key events this week:
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New Zealand issues half-year economic and fiscal update, Wednesday
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China loan prime rates, Wednesday
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UK inflation, Wednesday
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US Conference Board consumer confidence, existing home sales, Wednesday
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Bank Indonesia rate decision, Thursday
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US GDP, initial jobless claims, Conf. Board leading index, Thursday
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Nike earnings, Thursday
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Japan inflation, Friday
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UK GDP, Friday
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US personal income and spending, new home sales, durable goods, University of Michigan consumer sentiment index, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 9:13 a.m. Tokyo time. The S&P 500 rose 0.6%
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Nasdaq 100 futures were little changed. The Nasdaq 100 rose 0.5%
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Japan’s Topix index rose 0.9%
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Australia’s S&P/ASX 200 Index rose 0.7%
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Hong Kong’s Hang Seng futures rose 1%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0974
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The Japanese yen fell 0.1% to 144.02 per dollar
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The offshore yuan was little changed at 7.1264 per dollar
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The Australian dollar was little changed at $0.6758
Cryptocurrencies
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Bitcoin fell 0.3% to $42,354.56
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Ether fell 0.1% to $2,182.13
Bonds
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The yield on 10-year Treasuries declined one basis point to 3.92%
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Japan’s 10-year yield declined six basis points to 0.575%
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Australia’s 10-year yield declined four basis points to 4.07%
Commodities
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Cristin Flanagan.
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