Asian shares rally as markets wager on Fed pivot; US inflation in focus

Asian shares rose on Thursday as markets wagered that US rates have peaked after more dovish remarks from Federal Reserve officials, while traders awaited the US consumer inflation report due later in the day for further monetary policy clues.

Europe is set to extend the rally, with EUROSTOXX 50 futures STXEc1 up 0.3% and FTSE futures FFIc1 rising 0.4%. S&P 500 futures ESc1 and Nasdaq futures NQc1 were 0.3% higher.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.9% to the highest level in three weeks. Tokyo's Nikkei rallied 1.7%, climbing away from its five-month low hit last week.

News that Central Huijin Investment, a Chinese state fund, raised stakes in the country's big four banks also boosted confidence in the broader market. Hong Kong's Hang Seng index jumped 2.0% and China's blue chips .CSI300 rose 0.8%.

China, however, has also issued a notice prohibiting domestic brokerages and their overseas units from taking on new mainland clients for offshore trading, which will restrict capital outflows, Reuters reported on Thursday.

Overnight, Wall Street closed higher after Fed minutes showed a growing sense of uncertainty around the path of the US economy, with volatile data and tightening financial markets posing risks to growth and leading policymakers to extend a rate pause last month.

The recent buoyancy in sentiment also owes much to comments from more Fed officials suggesting US rates may have peaked, which triggered a welcome pullback in Treasury yields.

US Fed Governor Christopher Waller on Wednesday said higher market interest rates may help the Fed slow inflation and allow the central bank to "watch and see" if its own policy rate needed to rise again or not.

Waller has been among the most vocal advocates for higher interest rates to fight inflation, and his comments added weight to similar statements this week by Fed Vice Chair Philip Jefferson and Dallas Fed President Lorie Logan.

The dollar drifted near a two-week low, but the yen is still under pressure at 149.09 per dollar, just a whisker away from the 150 level that could spur intervention from Japanese authorities.

Markets moved to further trim the chance of a Fed hike in November to just 9%, down from 13.2% a day earlier, and there is a 70% chance that the rate is already at its peak, according to CME FedTool.

With the long-awaited pivot for the Fed in sight, traders are bracing for the all-important US consumer inflation report due later on Thursday. Stakes are higher because a producer price inflation report came in hotter than expected on Wednesday.

Economists expect the headline consumer price index (CPI) to haven risen 0.3% in September on a monthly basis, slowing from 0.6% in August, while core CPI is seen steady at 0.3%.

Alan Ruskin, chief international strategist at Deutsche Bank, said an upside surprise in the core rate of 0.4% or more would catch investors off guard, although geopolitical risk was likely to deter the bond market from trading too bearishly on stronger data.

"The more lasting impact to the data would likely come from a 0.4% m/m core number, which would mean that the two most important data releases for September numbers (non-farm payrolls and CPI) would both be making a case for the Fed remaining hawkish," he said.

Long-dated treasury yields eased for a third straight session, also benefiting from some safe-haven demand from the ongoing conflict in the Middle East.

Ten-year yields eased 3 basis points to 4.5706% on Thursday, off from a 16-year high of 4.8870%.

Oil prices extended their declines on Thursday after top OPEC producer Saudi Arabia pledged to help stabilise the market amid fears of supply disruption from the conflict between Israel and Palestinian fighter group Hamas.

Brent LCOc1 futures eased 0.3% to $85.56 a barrel after a 2% drop in the prior session. US West Texas Intermediate crude CLc1 fell 0.5% to $83.08, following a 2.9% plunge on Wednesday.

Spot gold was 0.3% higher at $1,878.98 per ounce, about the highest in two weeks.