Asia stocks hit 2-week high as Fed talk turns dovish. The dollar advanced on Wednesday as traders reduced their expectations for U.S. interest rates in response to a dovish shift in tone from Federal Reserve officials. Asia’s stock markets surged due to stimulus prospects in China and solid profits in South Korea.

The largest MSCI index of Asian stocks outside of Japan (.MIAPJ0000PUS) increased 1.5% as it approached its best day in two and a half months. The Kospi (.KS11) in South Korea was up 2.4% and headed for its best day since January after semiconductor and battery results exceeded expectations.

While traders awaited U.S. producer prices later in the day and Thursday’s CPI data, the Australian dollar reached a week high against the dollar, the pound reached a three-week high, and the Kiwi reached a two-month high. However, the movements were choppy and minor.

Several Fed officials have highlighted that recent increases in longer-term rates may aid in their efforts to combat inflation.

Raphael Bostic, president of the Atlanta Federal Reserve, received cheers when he said to a roomful of bankers in Nashville on Tuesday, “I actually don’t think we need to increase rates anymore.”

Bond markets remained steady throughout the Asian day. Benchmark 10-year Treasury rates were 4.65%, or around 24 basis points below Friday’s 16-year high. Thirty-year rates flirted with 5% last week and dropped two bps to 4.81%.

According to Brent Donnelly of Spectra Markets, higher back-end rates now indicate less Fed tightening, everything else equal.

“The failure of 30-year yields to hold above 5% … is another sign that peak fixed income (volatility) and probably peak yields have been reached for now,” he stated. “I think stocks go higher into year-end as they benefit from stabilization in fixed income, oversold conditions, and positive seasonality.”

The mood was boosted by a Bloomberg story that China was planning economic stimulus measures. This was notably true in Hong Kong, where a strong rebound sent the Hang Seng (.HSI) above 18,000 for the first time in two weeks. Only 0.3% were added to the Shanghai Composite (.SSEC).

BUILD DOWN

Since Monday’s spike, oil prices have remained stable on commodities markets due to worries that a surprise strike by Palestinian terrorists on Israel may lead to a larger confrontation. Following a Monday peak of $89 per barrel, Brent futures were trading at $87.90.

Concerns that a gas pipe in Finland was sabotaged have driven up European gas prices, which had already risen on news of the Middle East conflict and reached a seven-month high on Tuesday.

The yen, which last traded at 148.94 per dollar, has managed to hold on to a tiny gain achieved as the Middle East tension has boosted safe-haven assets. At $1.0601, the euro hardly changed. European futures remained where Tuesday’s cash trading left off, while U.S. stock futures were stable.

Shares of Samsung (005930. KS) increased by 3% amid hopes that the memory chip market is finally stabilizing and a third-quarter earnings decline less severe than anticipated. Shares of battery manufacturer LG Energy Solution (373220. KS) rose 7% after the company revealed that its third-quarter earnings were probably up 40% from a year ago.

Following the announcement that its chairman will step down, Qantas shares (QAN.AX) saw their best session in three months in Australia as the airline works to restore its damaged reputation.

According to people familiar with the situation, Exxon Mobil (XOM.N) is anticipated to announce on Wednesday that it will purchase American competitor Pioneer Natural Resources (PXD.N) for around $60 billion.

Pepsi (PEP.O) started the U.S. earnings season with a positive report. The company boosted pricing, and the chief financial officer anticipates future moderate hikes, which bodes well for consumer spending but may serve as a cautionary note on inflation.

Later on Wednesday, a poll on inflation forecasts from the European Central Bank is expected. The U.S. earnings season begins in earnest later in the week, and large banks’ profits are anticipated to increase.