Asian markets track Wall Street higher, but Fed meeting seen

SYDNEY Reuters Asian shares tracked Wall Street higher amid hopes that China's economy would pick up pace as COVID 19 curbs ease, but caution ahead of a week full of risk events, including the Federal Reserve's policy meeting, could cap sentiment.

The broadest index of Asia-Pacific shares outside Japan was up 0.9% in early trade, edging closer to a three-month high earlier in the week. It was expected to rise by 0.9% for the week.

Hong Kong's Hang Seng index increased by 1.2%, with mainland developers up a whopping 4%. The Chinese blue chips saw more subdued gains.

On Thursday, China's Premier Li Keqiang said on Thursday that China's shift in COVID policy would allow the country's economy to pick up pace, a day after a top-level party meeting pledged to focus on stabilising growth while optimising the pandemic measures.

After data showed that there was a loosening in the labour market, with weekly jobless claims rising moderately, investors are focused on U.S. producer price inflation later in the day for more signs of the health of the U.S. economy.

U.S. stocks snapped their recent losing streak to rebound. The Dow Jones Industrial Average went up 0.55%, the S&P 500 gained 0.75%, and the Nasdaq Composite added 1.13%.

The consumer inflation data is due next week, with economists forecasting that inflation will slowed slightly to 8.0% in November from a year ago, compared to 8.2% in October.

Futures have priced in the possibility that the Fed will slow down its rate hike to 50 basis points next week, but the U.S. federal funds rate would have to peak around 4.9% by the end of May.

This slowing is not a signal that the central bank's job is nearly done. Brian Martin, head of G 3 economics at ANZ, said that the slower pace of hikes starts a new phase of the Fed's tightening cycle. The risks to the 5.00% terminal view are due to the fact that the labour market is still buoyant and the inflation proving sticky. Analysts at Barclays believe that the Fed will focus on a transition to slower hikes without easing broader financial conditions at this meeting.

With data on activity suggesting that the Fed's hikes have limited traction on activity, we think the FOMC will accompany the move with hawkish dots to reiterate that the hiking cycle has a way to go. The Fed, the European Central Bank and the Bank of England are all set to announce interest rate decisions next week as policymakers continue to press the brakes on economic growth through firmer rates to thwart stubborn inflation.

The U.S. dollar fell 0.2% against a basket of major currencies on Friday, on top of a drop of 0.4% overnight. The safe-haven dollar was set to finish the week flat.

Treasury yields rose overnight and were largely steady, after falling to the lowest in three years earlier in the week on expectations of slower growth or that a recession will curb the rise in rates.

The yield on the 10-year Treasury notes held at 3.4819%, compared to its U.S. close of 3.493%. The two-year yield touched 4.3139%, up slightly from its U.S. close of 4.312%.

The yield curve has been the most inverted since the early 1980s at around 83 bps, pointing towards a U.S. recession in the near future.

In the oil market, prices went up after fears that a slowdown in the global economy would lead to reduced demand.

U.S. West Texas Intermediate WTI crude futures surged by 0.9% to $72.11 per barrel, while Brent crude fell to $76.15 a barrel, 1% higher.

Gold was slightly lower. The ounce is 99 per ounce.