Asian shares advanced on Thursday after the US Federal Reserve expressed optimism about the economy, virtually cementing the case for a year-end rate hike as investors awaited the formal nomination of the next head of the central bank.
The White House plans to nominate current Fed Governor Jerome Powell as the next chair when Janet Yellen's term expires in February, a source familiar with the matter said on Wednesday. Powell’s nomination is expected later on Thursday and would need to be confirmed by the Senate.
Rising expectations that President Donald Trump will tap Powell, who is seen as more dovish on interest rates, have pressured US Treasury yields and the dollar this week.
MSCI’s broadest index of Asia–Pacific shares outside Japan added 0.1 per cent in early trading, moving back toward a 10-year peak scaled in the previous session.
Japan's Nikkei stock index was up 0.2 per cent, probing fresh 21-year highs and on track to gain 2.3 per cent in a holiday-shortened week. Japanese markets will be closed for a national holiday on Friday.
Foreign investors, who largely shunned Japanese stocks earlier this year, have turned net buyers over the past six weeks, according to the Tokyo Stock Exchange.
On Wednesday, Wall Street posted modest gains after the Fed held policy steady as expected and underscored solid US economic growth as well as a strengthening labour market while downplaying the impact of recent hurricanes.
Investors took that as a sign the US central bank is on track to resume hiking interest rates next month, with federal fund futures putting the odds of a December rate hike at about 98 per cent, according to CME Group’s FedWatch program.
The Fed has raised interest rates twice this year, and forecasts one more hike by the end of the year as part of its tightening cycle that began in late 2015.
In addition to the Fed’s encouraging assessment, ADP National Employment Report showed that private employers hired 2,35,000 workers in October, the most in seven months.
The upbeat figures “speak to a broad mosaic of good economic data coming out of the US, although slightly muddied by the hurricanes,” said Bill Northey, chief investment officer at the private client group of US Bank in Helena, Montana.
On Friday, the Labor Department’s non-farm payrolls report is expected to show growth of 3,03,000 jobs in October, compared to a drop of 40,000 the month before. Total non-farm employment is expected to have increased by 3,12,000, according to economists polled by Reuters.
US Treasury yields fell further on Wednesday and the yield curve was its flattest since 2007 after the Treasury Department said that it would keep auction sizes steady in the coming months, despite the Fed’s plan to reduce its bond holdings.
Benchmark 10-year note yields were at 2.372 per cent in Asian trading, compared to their US close of 2.376 per cent on Wednesday, when they dipped as low as 2.349 per cent.
The dollar index, which tracks the greenback against a basket of six major rivals, edged down 0.1 per cent to 94.712
The dollar pulled back slightly against the yen to 114.15 , below its three-month high of 114.45 yen touched last Friday, while the euro was 0.1 per cent higher at $1.1630.
Crude oil futures were steady, with Brent crude flat on the day at $60.49 per barrel and US crude down 6 cents at $54.24.
While oil settled lower on Wednesday after weekly US government inventory data showed the latest crude stock draw was not as big as an industry trade group had reported, both Brent and US crude futures remain near their highest levels since July 2015 as lower global supply pushed markets higher.