SINGAPORE: Asia shares were on steadier footing on Wednesday, helped by an overnight rebound on Wall Street as a brief selloff in global bond markets and cryptocurrencies abated.
Bitcoin reclaimed the $90,000 level while Nasdaq and S&P 500 futures rose 0.1% each.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.3% while Japan’s Nikkei advanced 0.8%.
Calm was restored to markets on Wednesday after an ugly start to the week, where expectations of a looming rate hike in Japan triggered a global bond selloff and exacerbated a slide in cryptocurrencies, leaving stocks caught in the rush from risk assets.
“The narrowing in spreads and movement in the yen may have resurfaced some of the carry trade fears and unwinding of leverage positions,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management, referring to the prospect of falling rate differentials between the U.S. and Japan.
“Rightly or wrongly there was a period when the performance of crypto was being used as a gauge for risk sentiment, but we also know that the market is sensitive to broader liquidity conditions.”
Moves in Japanese government bonds (JGBs) were more muted in the early Asian session on Wednesday, though they continued to face downward pressure as investors ramped up bets for a Bank of Japan (BOJ) rate hike later this month.
The five-year JGB yield hit its highest since June 2008 at 1.38%, while the 40-year JGB yield was up 1 bp to 3.695%. Bond yields move inversely to prices.
A More Dovish Fed Outlook
Given the lack of major market catalysts for now, analysts said the focus also shifted back to an expected rate cut from the Federal Reserve next week, which has improved market sentiment.
“I just can’t see any reason why (equities) won’t be well supported into the FOMC rate cut next week, and I think then you start to hit that really nice sweet spot in mid-December when equity markets just rally,” said Tony Sycamore, a markets analyst at IG.
December has historically been a good month for stocks.
Investors have also been pricing in a more dovish Fed outlook, on the view that White House economic adviser Kevin Hassett, reportedly the frontrunner to become the next chair, would deliver further rate cuts once he succeeds Jerome Powell.
U.S. President Donald Trump said on Tuesday he would announce his Fed chief nominee early next year, and that he has narrowed the list to one person.
That has in turn kept the dollar on the back foot, leaving the euro 0.06% firmer at $1.1632.
Sterling also rose 0.06% to $1.32235, while the dollar fell 0.07% against the yen to 155.77.
“Hassett is dovish on monetary policy and closely aligned with President Trump. His appointment can therefore dent the FOMC’s perceived independence, a negative for the USD,” said Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia.
The Australian dollar fell after data showed the Australian economy slowed unexpectedly in the September quarter, missing forecasts. It was last flat at $0.6566.
In commodities, oil prices were nursing losses after falling in the previous session, as markets weighed faltering Russia-Ukraine peace hopes against fears of oversupply.
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