Asian stocks outside Japan tracked a surge in the U.S. and bonds climbed after Federal Reserve Chair Janet Yellen reasserted the central bank's gradual approach to raising interest rates. Oil rallied as the dollar headed for its worst month in almost five years.
Shares from Kuala Lumpur to Seoul and Shanghai climbed after U.S. equities erased their losses for the year, with Yellen indicating deteriorating world growth warranted a slow approach to tightening monetary policy. While the comments ignited gains in government debt, diminishing prospects of a rate increase in the first half sent the Bloomberg Dollar Spot Index toward a five-month low. Japanese stocks retreated amid a revival in the yen, while U.S. oil rallied for the first time in five days. Copper and nickel climbed as gold retreated.
Traders reduced bets on a Fed rate increase next month to zero after Yellen dialed back some of the commentary made by other policy makers the past two weeks, emphasizing during her appearance at the Economic Club of New York that the central bank remains wary of raising rates amid threats to American growth from a slowing global economy. Financial markets have been hanging on the outlook for U.S. borrowing costs since the Fed reduced the expected pace of rate increases this year to two from four at its March gathering. Since then, some Fed officials had asserted that every meeting remains in play.
"For the first time in a long time, Janet Yellen speaks and markets go up," Niv Dagan, executive director at Peak Asset Management LLC in Melbourne, said by e-mail. "It is clear that U.S. interest rates won't rise any time soon."
Stocks
The MSCI Asia Pacific excluding Japan Index climbed 1.3 percent as of 11:22 a.m. Tokyo time, rising for the first time in six days to snap its longest slump in more than a month. MSCI's broader, dollar-denominated Asia Pacific gauge, which includes Japan, added 0.8 percent, even as the Topix index slid 0.5 percent in Tokyo. The regional benchmark has climbed 8.1 percent in March, its best performance since October.
The yen, which often moves at odds with Japanese shares, climbed a second day, adding 0.2 percent to 112.48 per dollar after snapping a seven-day decline on Tuesday. The Japanese currency is headed for a 0.2 percent advance in March, after surging 7 percent in February. Japan's Nikkei 225 Stock Average was down 0.5 percent, paring its advance this month to 6.2 percent.
The Shanghai Composite Index jumped 1.6 percent. Hong Kong's Hang Seng index gained 1.4 percent and the Hang Seng China Enterprises gauge surged 2 percent.
Australia's S&P/ASX 200 Index climbed 0.3 percent, led higher by utilities and industrial shares. The Kospi index increased 0.5 percent with the Bank of Korea's governor due to speak to reporters Wednesday.
Malaysia's benchmark stock index, the FTSE Bursa Malaysia KLCI Index, rose 0.5 percent, extending the world's longest bull-market run. The gauge has more than doubled from its 2008 lows without succumbing to a 20 percent drop.
Futures on the Standard & Poor's 500 Index added 0.1 percent following a 0.9 percent jump in the U.S. benchmark that put it back at levels last seen at the end of 2015.
Yellen's speech "painted a very dovish picture for the inflation outlook in 2016, and although she didn't directly use this term, she clearly sees the U.S. economy as two-speed," Evan Lucas, a markets strategist at IG Ltd. in Melbourne said in an e-mail to clients. "The yen now has to contend with negative rates not having the desired effect, the Bank of Japan assessing other unconventional monetary policy options and a U.S. central bank unlikely to raise rates."
Currencies
As the yen extended gains, South Korea's won led a rally in Asian emerging-market currencies. Bloomberg's dollar index held declines after sliding 0.8 percent last session. The gauge, which tracks the greenback against 10 major peers, has lost 3.4 percent in March, set for a second straight monthly drop.
The won surged 0.8 percent as the combination of the weaker dollar and crude oil's rebound bolstered Malaysia's ringgit. The Thai baht strengthened for the first time this week.
The Fed would act "cautiously" as it looks to raise rates against a backdrop of deteriorating global growth, Yellen said. Policy makers including St. Louis Fed President James Bullard and San Francisco Fed boss John Williams said last week that higher borrowing costs were possible as soon as next month.
"Yellen indicated that core Fed members take into account the global context more than regional officials," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in New York. "A June rate hike would be difficult as global financial turmoil earlier this year affects the real economy with a time lag."
Odds of a U.S. rate rise next month slipped to zero Tuesday, from 10 percent a week ago, while the probability of an increase at the Fed's June meeting declined to 28 percent, from 46 percent a week earlier, according to futures trading tracked by Bloomberg.
Bonds
Australian government debt led the charge higher in Asia, with 10-year yields sliding six basis points, or 0.06 percentage point, to 2.51 percent. Rates on similar maturity Korean bonds dropped two basis points to 1.80 percent, while yields on Japanese notes due in a decade declined one basis point to minus 0.1 percent.
Yields on 10-year Treasuries were little changed at 1.81 percent after they fell eight basis points last session. A bond-market gauge of inflation expectations rose Tuesday as investors bet on a faster pace of price increases.
Commodities
West Texas Intermediate crude snapped a four-day, 7.7 percent tumble to rise 1.4 percent Wednesday, to $ 38.80 a barrel. Brent crude gained 1.1 percent to $ 39.56. The weaker dollar makes crude and other commodities cheaper in other currencies.
Copper for three-month delivery rose 0.5 percent to $ 4,915 a metric ton on the London Metal Exchange, while nickel advanced 1.1 percent to $ 8,540. Gold declined 0.4 percent to $ 1,237.56 an ounce in the spot market following a 1.7 percent jump last session.
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