Asian shares rise on Fed optimism, sterling firms on expected BOE hike

TOKYO (Reuters) - Asian shares touched a 10-year high on Thursday after the US Federal Reserve expressed optimism about the economy, virtually cementing the case for a year-end rate hike as investors awaited the formal nomination of the next head of the central bank. But investors were nervous as they awaited a tax bill from squabbling Republicans in the US House of Representatives, which was expected later in the session after a one-day delay. The plan is said to include $6 trillion in tax cuts over 10 years but is unlikely to define how these would be offset as Republicans remain split over how to pay for them. Also later on Thursday, the Bank of England was expected to deliver its the first rate hike in more than a decade, following the pattern set by the Fed and to an extent by the European Central Bank, which has said it will start to scale back its years of stimulus. Sterling firmed 0.3 percent to $1.3285 ahead of the decision. MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.2 percent, climbing to its highest levels since November 2007. Japan's Nikkei stock index was up 0.2 percent at the end of morning trading, probing fresh 21-year highs and on track to gain over 2 percent in a holiday-shortened week. Japanese markets will be closed for a national holiday on Friday. US S&P e-mini futures were down 0.2 percent. “There is some element of uncertainty about the US tax bill and next Fed chief, and this is having an effect on the US market, though shares in Asia appear quite resilient today,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust. “Still, it would not be surprising if some investors used the uncertainty as a reason to take profits after recent strong gains,” she said. The White House plans to nominate current Fed Governor Jerome Powell as the next chair when Janet Yellen’s term expires in February, a source familiar with the matter said on Wednesday. Powell’s nomination, which would need to be confirmed by the Senate, is expected later on Thursday before President Donald Trump leaves on a trip to Asia. Rising expectations that Trump will tap Powell, who is seen as more dovish on interest rates, have pressured US Treasury yields and kept the dollar on the backfoot this week. On Wednesday, Wall Street posted modest gains after the Fed held policy steady as expected and underscored solid US economic growth as well as a strengthening labor market, while downplaying the impact of recent hurricanes. Investors took that as a sign the US central bank is on track to resume raising rates next month, with federal fund futures putting the odds of a December rate hike at about 98 percent, according to CME Group’s FedWatch program. In addition to the Fed’s encouraging assessment, the ADP National Employment Report showed that private employers hired 235,000 workers in October, the most in seven months. The upbeat figures “speak to a broad mosaic of good economic data coming out of the US, although slightly muddied by the hurricanes,” said Bill Northey, chief investment officer at the private client group of US Bank in Helena, Montana. On Friday, the Labor Department’s nonfarm payrolls report is expected to show growth of 303,000 jobs in October, compared to a drop of 40,000 the month before. Total non-farm employment is expected to have increased by 312,000, according to economists polled by Reuters. US Treasury yields fell further on Wednesday and the yield curve was its flattest since 2007 after the Treasury Department said it would keep auction sizes steady in the coming months, despite the Fed’s plan to reduce its bond holdings. Benchmark 10-year note yields were at 2.361 percent in Asian trading, compared to their US close of 2.376 percent on Wednesday, when they dipped as low as 2.349 percent. The dollar index, which tracks the greenback against a basket of six major rivals, slipped 0.3 percent to 94.524. The dollar pulled back 0.2 percent against the yen to 113.91, moving away from its more than three-month high of 114.45 yen touched last Friday. The euro was 0.3 percent higher at $1.1654, remaining about its three-month low of $1.1574 touched on Friday, a day after the ECB said it will extend its bond purchases into September 2018. Crude oil futures firmed, with Brent crude up 14 cents at $60.63 per barrel and US crude up 3 cents at $54.33. While oil settled lower on Wednesday after weekly US government inventory data showed the latest crude stock draw was not as big as an industry trade group had reported, both Brent and US crude futures remain near their highest levels since July 2015 as lower global supply pushed markets higher.