Asian equities rise to mid-February as Fed bets firm

A man walks past an electric monitor that monitors Japan's Nikkei share average and recent movements, outside a bank in Tokyo.

TOKYO Reuters - Asia-Pacific equities rose to their highest level since mid-February on Friday, taking notes from an overnight Wall Street rally as market bets firmed for the Federal Reserve to skip a rate hike next week.

Japanese and Australian bond yields followed those on U.S. Treasuries lower, and the dollar remained on the defensive early in the Asian session.

MSCI's broadest index of Asia-Pacific shares grew 0.6%, and at one point reached its strongest level since February 16.

Many of it was driven by a 1.66% rise in Japan's Nikkei, which rebounded strongly following its dive from a 33-year high in the previous session.

On Wall Street, gains were led by Nasdaq, which surged 1.27%. The S&P 500 broader index rose 0.62% yesterday. E-mini E-mini U.S. equity futures in Asia pointed to about a 0.1% lower restart for each of the indexes.

Traders now have 1 - in - 4 odds of the Fed raising rates by a quarter point on June 14, versus 75% probability of a pause. But the market sees the hike as mostly guaranteed by the July 26 decision, laying the odds at about 80%.

Data showing the number of Americans filing new jobless claims rose to a more than 2 years high.

Some analysts point to surprise rate increases at the Bank of Canada and the Reserve Bank of Australia this week as reasons not to be complacent.

I wouldn't go all in and say we're going to get a rate hike, but I think we should be at least 50% priced, said Tony Sycamore, an analyst at IG Markets in Sydney.

Mr. Sycamore added that people can point to Fed Chair Jerome Powell's comments as being more supportive of a hold than a hike.

I can't imagine he'd be happy by the rise in core PCE inflation or the robust gain in non-farm payrolls. On May 19 Powell said that it was still uncertain if U.S. interest rates would need to rise further and that the risks of overtightening or undertightening had become more balanced.

Two-year Treasury yields were little changed in Tokyo after a 3 basis-point drop by the New York close, which is extremely sensitive to monetary policy expectations. The 10 year yield edged up to 3.73% after tumbling 7 bps overnight.

The U.S. dollar index, which tracks the currency against a basket of six major peers, was little changed today at 103.34, just ahead of the more than two-week low of 103.29 reached on Thursday.

The dollar rose 0.15% to 139.135 yen after dipping to a one-week low of 138.765.

The euro was flat at $1.0784, less than the two-week high of $1.0787 on Thursday.

The Turkish lira, meanwhile, has remained at a record low of 23.54 percent, even as President Tayyip Erdogan's selection of a US banker as central bank chief signaled a fresh signal for a return to more orthodox policy.

Crude oil remained down on Friday after a report that the United States and Iran were close to a nuclear deal.

On Thursday, Optimism for a deal, which reportedly included scope for an additional 1 million barrels per day of Iranian production, had eknocked down West Texas Intermediate WTI crude by $3.50 to just shy of $69 at one point.

WTI futiles were weaker than Thursday's close at $70.83. Brent crude futures were off 47 cents at $75.49, the biggest gain in more than a year.