By Kenan Machado
Global equities extended their rally in Asia on Thursday, as dovish comments from Federal Reserve Chairwoman Janet Yellen improved risk-taking appetite.
In her testimony on Capitol Hill, Yellen signaled that the Fed would take a cautious approach to tightening policy in the face of an uncertain inflation outlook.
She said the Fed would continue to raise interest rates gradually, though it would change plans if inflation weakness persisted.
Yellen’s congressional testimony likely indicates the Fed won’t raise rates in September, said Kathy Lien, managing director for forex strategy at BK Asset Management.
“Everything hinges on inflation, which is the key uncertainty and right now it is running below their goal, having declined recently,” Lien said. “These are not the words of a hawkish central banker who wants to pound the table for additional tightening this year.”
Yellen’s comments offered some relief to equity investors, as stocks are at historical highs--helped in part by the availability of cheap money. The Bank of Korea left rates unchanged Thursday, though the Bank of Canada raised rates overnight.
Hong Kong’s Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI -1.05% was up 1.6%, leading gains in the region to hit a fresh two-year intraday high. Korea’s Kospi /zigman2/quotes/210598069/delayed KR:180721 -1.49% was up 1% after the rate decision, which wasn’t a surprise, but it indicated that the bank was in no rush to change its stance in spite of an improved growth outlook. The Kospi closed up 0.7%. Samsung Electronics /zigman2/quotes/209800866/delayed KR:005930 -1.33% was 1.3% higher.
Meanwhile, shares of blue-chip Chinese banks were higher in Hong Kong, with Bank of China /zigman2/quotes/204682472/delayed HK:3988 -0.93% up 1.3%, Industrial and Commercial Bank /zigman2/quotes/201401473/delayed HK:1398 -0.54% higher by 1.3% and Agricultural Bank of China /zigman2/quotes/200705246/delayed HK:1288 0.00% gaining 1.1%. They have been gaining since Beijing injected liquidity into the interbank market on Wednesday for the first time since June 19, easing concerns about a liquidity squeeze.
Finance stocks also drove gains in Australia’s S&P/ASX 200 /zigman2/quotes/210598100/delayed AU:XJO -0.33% , which added 1.1% to almost make up for losses in the previous session. Among key bank stocks, Westpac /zigman2/quotes/203084975/delayed AU:WBC +0.47% rose 1.8%, Commonwealth Bank of Australia /zigman2/quotes/200638713/delayed AU:CBA +1.08% rose 0.5% and Australia and New Zealand Banking Group /zigman2/quotes/205482049/delayed AU:ANZ +0.78% gained 0.6%.
In Japan, a slightly weaker yen helped support the Nikkei Stock Average /zigman2/quotes/210597971/delayed JP:NIK -0.39% — which was up 0.1% — as a cheaper currency makes the country’s exports more competitive. Stocks of construction machinery and car makers rose, with Hitachi /zigman2/quotes/203839937/delayed JP:6501 -0.26% advancing 0.6% and Mitsubishi Motors /zigman2/quotes/202404490/delayed JP:7211 -0.25% up 0.8%. The U.S. dollar-yen pair /zigman2/quotes/210561418/realtime/sampled JPYUSD +0.0986% was last at 113.18, up from 113.04 late Wednesday in New York.
Still, the market rally on Thursday may prove to be short-lived, as investors take stock of the sharp year-to-date gains in many key markets.
Even though Yellen played down the Fed’s balance sheet wind-down, central banks world-wide may be getting more concerned about asset prices, said Sean Darby, chief global equity strategist at Jefferies.
“Clearly they are uncomfortable with the pricing regime that has occurred,” he said.