Global stocks jumped on Thursday after US Federal Reserve Chair Jerome Powell reaffirmed interest rates would stay low for a long time, calming market fears that higher inflation might prompt the central bank to tighten monetary policy.
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Powell's reassurance gave a fresh impetus to reflation trades and boosted risk asset prices while also driving US bond yields back up to one-year highs.
In Asia, MSCI's ex-Japan Asia-Pacific shares index rose 1.5 per cent while Japan's Nikkei gained 1.7 per cent.
Hong Kong's Hang Seng jumped 1.5 per cent to pare more than half of its previous day's losses following the announcement of a stamp duty hike.
In a second day of testimony in Washington, Powell reiterated the Fed's promise to get the US economy back to full employment and to not worry about inflation unless prices rose in a persistent and troubling way.
"Powell said it will take three years for them to achieve its inflation target, essentially reaffirming the Fed will not raise interest rates until 2023," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
"A huge amount of cash investors have to work is flowing into the stock market, and that is more than offsetting any negative aspects of higher bond yields."
The prospects of a prolonged period of low interest rates came as investors expect a huge US fiscal stimulus and a progress in COVID-19 vaccinations to shore up the economy, especially the sectors hit the hardest by the pandemic.
The US Food and Drug Administration said on Wednesday Johnson & Johnson's one-dose COVID-19 vaccine appeared safe and effective in trials, paving the way for its approval for emergency use as soon as this week.
On Wall Street, the Dow Jones average jumped 1.35 per cent to a record high, outperforming 1.0 per cent gains in tech-heavy Nasdaq , as investors rotated into cyclical shares out of flying-tech firms.
In a possible sign of a fresh frenzy in meme shares, GameStop rose 83.3 per cent in extended trade, building on a gain of 103.9 per cent on Wednesday.
US bond prices stayed under pressure, boosting their yields to the highest level in a year.
The 10-year US Treasuries yield rose to 1.412 per cent , having hit a high of 1.435 per cent on Wednesday.
"I wouldn't say there is a panic in the bond market. But we have a coronavirus package worthy of $1.5, $1.7 or $1.9 trillion. And in addition, there will be infrastructure spending as well. Investors see few reasons to buy bonds aggressively now," said Takafumi Yamawaki, head of Japan rates research at J.P.Morgan.
A closely watched part of the US yield curve measuring the gap between yields on two- and 10-year Treasury notes rose to 127.4 basis points, near its 2016 peak of around 136 hit after Donald Trump's surprise election victory.
In the currency market, the safe-haven US dollar languished near three-year lows versus riskier currencies as continued dovish signals from the Fed stoked reflation bets.
The Australian dollar hit a three-year high of $0.7978 while the Canadian dollar also hit a three-year high of C$1.2503 per US dollar.
The euro firmed slightly to touch a one-month high of $1.2183 while the safe-have yen was on the back foot at 105.93 per dollar.
Investors' strong risk appetite boosted many commodities.
Copper price jumped 3 per cent to its highest level in almost a decade and could log its biggest monthly gains in 15 years.
Crude oil climbed to fresh 13-month highs after US government data showed a drop in crude output as a deep freeze disrupted production last week.
US crude rose 0.25 per cent to $63.40 per barrel and Brent was at $67.33, up 0.43 per cent on the day.
Australian Associated Press
