Asian stocks, S&P 500 futures extend gains as weak US manufacturing data tempers Fed rate-hike bets

Markets in the Asia posted strong gains to mirror overnight gains in US equities as traders pared bets on Fed rate hikes in 2023

Trading in mainland China and Hong Kong paused for public holidays

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A person looks at an electronic stock board showing the Nikkei 225 and Dow indexes at a securities firm in Tokyo in October 2022. Photo: AP

Published: 11:43am, 4 Oct 2022Updated: 11:54am, 4 Oct 2022

Stocks in Asia advanced after an overnight rally in US shares triggered risk-on sentiment and weak manufacturing data tamped down fears of more aggressive Federal Reserve rate hikes.

The Nikkei 225 climbed 2.4 per cent as of 12.20pm in Tokyo, while the Kospi rallied 2.2 per cent in Seoul and the S&P/ASX 200 Index surged 2.6 per cent in Sydney. Equities rose 1.7 per cent in Taipei. An index tracking Asia-Pacific equities surged by more than 1.6 per cent, with investors shrugging off news about North Korea firing missiles over Japan for the first time since 2017.

Financial markets in mainland China and Hong Kong are closed for public holidays. Futures on S&P 500 advanced 0.6 per cent, after the cash market surged 2.6 per cent on Monday for its best day since July. US government bonds consolidated after a rally on Monday.

Federal Reserve Chair Jerome Powell departs from a meeting with the Treasury Department on October 3, 2022 in Washington. Photo: AFP

US factory activity fell in September to a more than two-year low, according to an index compiled by the Institute for Supply Management. That prompted traders to pare bets on Fed hikes. The March policy meeting contract’s rate dropped, suggesting a peak policy rate of 4.45 per cent in 2023, versus recent highs of above 4.60 per cent.

The Fed should consider stopping its tightening campaign after one more hike in its next meeting in November, according to market veteran Ed Yardeni of Yardeni Research.

Still, some Fed speakers remained hawkish. New York Fed President John Williams said the US central bank has yet to raise interest rates to levels that are restricting economic growth, and tightening still has “significant” ways to go.

“I think we’ve underestimated the pain of the stall out,” said Nicole Webb, a financial adviser at Wealth Enhancement Group. “At some point the Fed does stop raising. However, how long they hold us or suspend us there, is still in question.”