Asian stocks rise mainly on interest rates and inflation hopes
Asian stocks were mostly higher on Wednesday on hopes U.S. interest rate restrictions might ease after new data showed signs of easing inflation.
Benchmarks rose in early trading in Japan, South Korea and Australia, while slipping in China. Regional optimism was bolstered by the easing of the COVID-19-related lockdown in Shanghai. This type of development is a major asset for the main engine of growth in the region.
“The good news is that China will start to emerge from lockdowns at some point, and there will be an injection of stimulus of some form by the authorities to restart communities and the economy. The light at the end of the tunnel is reasonably bright for China,” said Clifford Bennett, chief economist at ACY Securities.
But Bennett was quick to add, “Don’t expect a return to runaway growth though.”
Japan’s benchmark Nikkei 225 jumped 1.4% in morning trade to 26,703.18. Australia’s S&P/AS 200 gained 0.2% to 7,465.30. South Korea’s Kospi jumped 0.7% to 2,686.14. Hong Kong’s Hang Seng fell 0.2% to 21,276.10, while the Shanghai Composite lost 0.6% to 3,194.69.
In Tokyo trading, shares of Shionogi fell 15% after the Japanese pharmaceutical company reported that animal testing for its experimental oral drug to treat COVID-19 showed it may pose a risk to the development of the fetus. Japanese media reported that the drug will not be prescribed to pregnant women or those who may be pregnant.
Stocks ended slightly lower on Wall Street after investors assessed inflation data for March, although overall they remained at their highest level in 40 years. Some analysts have called for caution.
“The fact remains that price pressures are still elevated at their highest level in 40 years and the near-term outlook for aggressive policy tightening to cool demand remains unchanged. Comments from Fed Governor Lael Brainard overnight, who has been a well-known dovish voice within the Fed, continued to reveal a tough stance to bring down inflation,” said strategist Yeap Jun Rong. market at IG in Singapore.
The S&P 500 fell 0.3% after rising 1.3% earlier in the day. The pullback extends the benchmark’s losing streak to a third day, reflecting investor concerns about potential collateral economic damage as the Federal Reserve more aggressively tackles high inflation.
The Dow Jones Industrial Average and the Nasdaq composite each fell 0.3% after losing early gains.
The indices initially rallied after the release of the report, which showed inflation last month was again at its highest level in generations, particularly due to soaring gasoline prices. Still, the reading was relatively close to economists’ expectations.
Another silver lining was that inflation was not as bad as economists had expected, ignoring food and fuel costs. Known as “core inflation,” this is the reading the Federal Reserve pays more attention to when setting policy because it is less volatile. And underlying month-on-month inflation moderated to its lowest level since September.
“Hopefully it’s as bad as it gets,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
“The risk is that a scorching labor market will cool under the force of these higher food, fuel and financing costs. This is a time when economic resilience will be tested.
The S&P 500 fell 15.08 points to 4,397.45. The Dow fell 87.72 points to 34,220.36 and the Nasdaq lost 40.38 points to 13,371.57.
Small company stocks held up better than the broader market. The Russell 2000 rose 6.61 points, or 0.3%, to 1,986.94.
In recent days, stocks have been trading in the opposite direction to Treasury yields, which have risen to their highest levels since well before the pandemic. Yields jumped as investors brace for the Federal Reserve to raise short-term rates at a faster than usual pace and aggressively reduce its stock of bonds, the accumulation of which has helped to keep long-term rates low.
But Treasury yields fell on Tuesday after the inflation report. The 10-year yield slipped to 2.72% from 2.77% Monday night. It was as high as 2.83% overnight, before the release of the inflation report. The 10-year rate nevertheless remains well above the level of 1.51% where it started the year.
Unease continues to hang over global markets over the war in Ukraine. In energy trading, benchmark U.S. crude added 43 cents to $101.03 a barrel. It climbed 6.7% to settle at $100.60 on Tuesday, keeping inflation pressure high. Brent crude, the international standard, rose 45 cents to $105.09.
Higher interest rates from the US Federal Reserve would slow the economy, which would hopefully reduce high inflation. Consumer prices were 8.5% higher in March than a year earlier, accelerating from February’s inflation rate of 7.9% and the highest since 1981.
To lower it, the Fed revealed in the minutes of its last meeting that it was prepared to raise short-term rates by half a percentage point, or double the usual amount, at certain meetings. to come, which it has not done since 2000.
The concern is that the Federal Reserve could be so aggressive in raising interest rates that it would force the economy into recession.
Rising interest rates have also put downward pressure on all kinds of investments, with those considered the most expensive being hit the hardest. This shed light on technology and other high-growth stocks that have been among the biggest recent gainers in the stock market.
Tech and financial stocks were among the biggest drags on the S&P 500 on Tuesday. Microsoft fell 1.1% and Wells Fargo 1.8%.
Further swings could be expected for stocks as companies prepare to report earnings for the first three months of the year. Delta Air Lines, JPMorgan Chase and other major companies will kick off the reporting season on Wednesday.
In currency trading, the US dollar rose slightly to 125.58 Japanese yen from 125.39 yen. The euro traded at $1.0830, little changed from $1.0832.
AP Business Writers Stan Choe, Damian J. Troise, and Alex Veiga contributed.