Asia stocks rise, dollar sags after Fed official’s dovish comments

Comments made by a Federal Reserve member reduced market expectations for a USA rate hike in the near term.

While some investors had speculated that Brainard would switch over to the more hawkish camp, the Fed governor had said on Monday she wanted to see a stronger trend in USA consumer spending and evidence of rising inflation before the Fed raises rates.

“The rally that we saw in U.S. trading after those (Brainard’s) comments is one of the reasons why we are seeing such a positive performance today across the Asia-Pacific region”, said Michael McCarthy, chief market strategist with CMC Markets.

Fed officials who were trying so hard to prepare markets for tightening monetary policy as early as September are now being ignored, as future traders are pricing in just a 15% chance for a hike in September down from 28% before Ms. Brainard spoke.

“Risk sentiment is a bit more stable today but generally there is this doubt”, he said.

U.S. Treasury yields also fell. “As the market reduces the likelihood of a near-term rate rise and if oil losses stabilise, gold prices should find a bottom, at least in the run-up to the FOMC”.

The effect had faded by the start of European trade and the dollar traded 0.3 percent higher against the yen and 0.2 percent against a basket of currencies. Analysts had expected the index to rise by 2.0 points to 2.5 in September.

Its 10-year Japanese counterpart yielded minus 0.020%, nudged away from a six-month peak of minus 0.010% reached recently.

European shares opened higher but quickly pared gains.

Taiwan’s Taiex index lost 0.1 per cent.

“This rebound looks weak to me, and lacking in conviction”. She said economic progress continues in the USA, but the Fed would be wise to continue keeping policy loose and a weak currency.

Japan’s Nikkei .N225 was up 0.3 percent. China is the world’s largest consumer of industrial metals and Tuesday’s data are expected to show factory output increased 6.2% from a year earlier in August.

Chinese shares ended flat, with the upbeat figures seen making further economic stimulus unlikely. US gold futures were up 0.5 percent at $1,332.20 an ounce.

CURRENCIES: The dollar fell to 101.82 yen from 101.89 yen while the euro slipped to $1.1234 from $1.1238.

“We’ve had a number of supportive comments from the policy hawks, but they are still struggling to convince the market”. This followed on from Asia’s lead, after talk of a rate rise in the United States dampened amongst traders. In its September oil market report, the Paris-based International Energy Agency reduced its forecast for global demand growth to 1.3 million barrels a day in 2016 – 100,000 below the previous forecast.

“This asymmetry in risk management in today’s new normal counsels prudence in the removal of policy accommodation”, she said, adding that this approach has served the us economy well in recent months.