Asian stocks rise on hopes of slower rate hike, ECB leads

By Ankur Banerjee

SINGAPORE (Reuters) – Asian stocks gained for the third day in a row on Thursday on growing hopes that major central banks could begin to ease the pace of interest rate hikes, the European Central Bank meeting later. during the day being at the center of concerns.

MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 1.24% and a rebounding Hong Kong again led the gains.

There were, however, some signs of faltering and European futures indicated that equities would fall ahead of the ECB’s rate decision, with markets expecting a 75 basis point rate hike.

Eurostoxx 50 futures fell 0.28%, while German DAX futures fell 0.20% and FTSE futures fell 0.23%. US futures rose 0.7%.

The impending ECB decision comes after the Bank of Canada surprised markets on Wednesday by announcing a lower-than-expected rate hike, weeks after Australia’s central bank made a similar decision.

All of this has heightened speculation that the Federal Reserve may soon ease its aggressive tightening, blunting the dollar’s recovery and pushing Treasury yields lower.

“The US pivot story is really starting to look more plausible,” ING regional head of research Robert Carnell said, adding that it was partly driven by the Bank of Canada’s move.

The market is looking for guidance on the pivot’s story, Carnell added. “Has the dollar had its day? … We won’t know until the FOMC meeting.

The Fed is expected to raise interest rates again by 75 basis points next week, although there is some anticipation that it will slow the pace of tightening and increase by half a point in December.

Carnell said the Fed’s forward guidance next week will be extremely important, noting that there has been a slight softening in the central bank’s stance on its tightening policy.

SLIDING RECESSIONS

In Asia, Australia’s resource-heavy stock index rose 0.5%, while Japan’s Nikkei fell 0.3%.

China’s stock market edged lower as weak industrial profit numbers and widening COVID-19 outbreaks weighed on sentiment. Hong Kong’s Hang Seng gained 2% but fell from the day’s highs as bargain hunter enthusiasm ebbs.

Chinese stocks had a turbulent week, marked by Monday’s sharp sell-off as global investors dumped Chinese assets amid fears President Xi Jinping’s new leadership team could put ideology ahead of economics.

In currency markets, the euro is above $1 for the first time in five weeks and last bought $1.1008. The greenback was down against most other major currencies, and particularly the yen, with the dollar/yen down 0.9% at 145.15.

The greenback’s decline was accompanied by a bond rally and a rise in commodity prices. Spot gold was flirting with the two-week high it hit on Wednesday.

Oil prices were firm and maintained overnight gains, with Brent futures trading at $95.78 a barrel.

The main challenge for central banks around the world is to design a policy path that extinguishes inflation, but must also consider the implications for growth and jobs, Citi strategists said in a note.

At the country level, Citi expects a series of “continuing recessions” with slowdowns appearing in the euro zone and the United Kingdom at the end of this year and in the United States in mid-2023.

Earnings reports from Facebook’s parent company Meta Platforms Inc on Wednesday and Samsung Electronics Co Ltd are starting to show signs the downturn has arrived.

Quarterly reports from Amazon and Apple due Thursday will provide more details on how the companies are faring and framing their outlook.

On Thursday, embattled Credit Suisse also outlined a long-awaited overhaul that will raise capital and unbundle its investment bank, along with a $4 billion loss.

(Reporting by Ankur Banerjee; Editing by Simon Cameron-Moore and Ana Nicolaci da Costa)

Stephen V. Lee