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Powell remarks boost Wall Street, Asia follows

The soothing words of Jerome Powell overnight unleashed anxiously waiting, but side-lined buyers, resulting in a strong overnight recovery by Wall Street. Mr Powell noted that the Fed could hike rates to rein in inflation, planned to start the balance sheet run-off sooner rather than later, but also said inflationary pressures would peak mid-year. What he didn’t say was also important. He didn’t back four rate hikes in 2022, nor a March start to hikes, nor did he give any details on when the Fed balance sheet run-off would start. It was an outstanding performance really, leaving the bowls neither too full nor too shallow; but just right from the financial market’s perspective.

The S&P 500 rallied 0.92%, the Nasdaq leapt higher by 1.41%, and the Dow Jones rose 0.52%. In Asia, futures on all three have held steady.

Asian markets have coat-tailed the New York rally and moved higher today. Notably, those that have struggled as the Nasdaq fell over the past few seasons. The Nikkei 225 has jumped 1.75% higher in response, with the South Korean Kospi rallying 1.15%, and Hong Kong also leaping 1.75% higher.

Mainland China’s Shanghai Composite has drifted 0.15% higher, with the more growth-centric CSI 300 climbing by 0.45%. Singapore and Taipei have drifted 0.15% higher, while Jakarta has gained 0.45%, and Kuala Lumpur and Manila are unchanged. Australia’s ASX 200 and All Ordinaries have added 0.45% today.

The broader rally has favoured more value-centric markets with a heavier correlation to the Nasdaq today. As such, I am not expecting fireworks from Europe when it opens, having enjoyed a good season with the US overnight. The US inflation data will be the next hurdle for the equity rally continuance. Above 7.0% likely brings the inflation trade back, limiting gains, while a sub 6.50% headline should keep the party going as Fed hiking timetables get reset back to mid-year.