Asian shares scaled a two-year top on Thursday as investors wagered policy tightening in the United States would be glacial at best, lifting Wall Street to record peaks and lowering bond yields almost everywhere.
The star performer was the Canadian dollar, which rocketed to 11-month highs after the country's central bank hiked rates for the first time in seven years and left the door wide open to further moves.
The overall mood was one of relief that Federal Reserve Chair Janet Yellen had not sounded more hawkish in her appearance before Congress, a green light for risk taking.
Sentiment got another boost when China reported upbeat data on exports and imports for June, helping the blue-chip CSI300 index rise 0.7 per cent.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.2 per cent to its highest since May 2015. South Korea climbed 1.1 per cent to a record after its central bank kept policy super easy to support consumer spending.
India also scored an all-time top, while Australia's main index jumped 1.1 per cent. Japan's Nikkei was restrained by a firmer yen and ended flat. In Europe, futures pointed to a steady start after a strong session the day before.
On Wall Street, the Dow had ended Wednesday up 0.57 per cent, while the S&P 500 gained 0.73 per cent and the Nasdaq 1.10 per cent. The rate-sensitive S&P 500 real estate index jumped 1.3 per cent, its biggest gain in about four months.
Drop in bond yields
Equities were underpinned by a drop in bond yields as Yellen sounded cautious on inflation and noted the Fed would not need to raise rates “all that much further” to reach current low estimates of the neutral funds rate.
“The market did perceive a greater degree of anxiety over inflation at the margin,” said Westpac's U.S. economist, Elliot Clarke. “To our mind, this is unlikely to get in the way of another hike this year.”
“Two further hikes in 2018 will likely be justified by conditions. However, the case for additional hikes thereafter is nowhere near being made.”
Indeed, markets doubt even that modest tightening will ensue and imply only a 50-50 chance of a rise by December.
Oh Canada
Treasuries rallied in reaction, with yields on two-year notes falling to three-week lows, as did bonds in Europe and Asia.
The odd man out was Canada, where yields hit their highest since late 2013 after the Bank of Canada raised rates a quarter point saying the economy no longer needed as much stimulus.
The Canadian dollar notched its biggest percentage gain since March 2016 and was last trading near one-year peaks at C$1.2740.
The main loser was the US dollar which slipped to 112.97 on the yen, while the euro edged up to $1.1451. Against a basket of currencies, the dollar was within a whisker of nine-month lows at 95.513.
The drop in US yields benefited gold, which pays no interest, and pushed the precious metal up 0.3 per cent to $1,223.16 and away from its recent trough of $1,204.45.
Crude oil
Oil prices flatlined as producer club OPEC said it expected demand to decline next year as rivals pump more, though the Chinese trade data showed it remained a heavy buyer.
Brent crude futures were off 4 cents at $47.70 a barrel, while US crude eased 5 cents to $45.44