Asian equities gained for a third straight day on Thursday, on growing hopes that major central banks could start slowing the pace of interest rate hikes, with the European Central Bank's meeting later in the day in focus for further clues.
MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rallied 1.24% and a rebounding Hong Kong again led gains.
There were, however, some signs of flagging momentum and European futures indicated stocks were set to decline ahead of the ECB's rate decision, with markets expecting a 75 basis-point rate hike. Eurostoxx 50 futures were down 0.28%, while German DAX futures fell 0.20% and FTSE futures were 0.23% lower. U.S. futures rose 0.7%.
The impending ECB decision comes after the Bank of Canada on Wednesday surprised markets when it announced a smaller-than-expected rate rise, weeks after Australia's central bank made a similar move.
All of this has increased speculation that the Federal Reserve may soon slow its aggressive policy tightening, blunting the dollar's rally and pushing Treasury yields lower. "The pivot story from the United States is really beginning to look more plausible," said ING's regional head of research Robert Carnell, adding this was driven in part by the move from Bank of Canada.
The market is looking for guidance on the pivot story, Carnell added. "Has the dollar had its day? ... We won't know that until the FOMC meeting."
The Fed is expected to raise interest rates by 75 basis points again next week although there is some anticipation it will slow the pace of tightening and hike by a half point in December.
Carnell said the Fed's forward guidance next week will be incredibly important, pointing out that there has been a slight softening of the stance from the central bank on its tightening policy.
