As investors evaluate the implications of hawkish central banks, Asian equities climb.
Hong Kong (Reuters) – Asia equities surged on Wednesday, buoyed by Wall Street’s advance, but gains were limited by concerns that aggressive central bank policy tightening could hinder the global economy and increase the danger of stagflation.
On Tuesday, the World Bank lowered its global growth prediction for 2022 by almost a third to 2.9%, saying that Russia’s invasion of Ukraine has exacerbated the harm from the COVID-19 epidemic and that many nations now risk recession.
Nonetheless, U.S. markets climbed for a second consecutive day to close higher, boosting sentiment in Asia. [.N]
MSCI’s broadest index of Asia-Pacific equities outside of Japan went up 0.9%, losing some of its early gains but making up for most of the losses from the previous session. In Japan, the Nikkei 225 index went up 0.8%.
As private consumption remained resilient and businesses restored inventories, Japan’s GDP fell somewhat less than previously estimated in the first quarter. The gross domestic product of the world’s third-largest economy decreased by 0.1%, exceeding market predictions of a dip of 0.3%.
The S&P/ASX 200 index in Australia jumped 0.37 percent, recouping a portion of Tuesday’s decline, after the central bank unexpectedly boosted interest rates by the highest in 22 years and signalled more tightening.
As expected, the Reserve Bank of India (RBI) raised its main interest rate by 50 basis points on Wednesday. This was the second increase in as many months.
After the policy decision, RBI Governor Shaktikanta Das said, “The inflationary concerns flagged in previous policy meetings have materialised sooner than anticipated.”
On Thursday, the European Central Bank will hold a meeting, and the markets expect it to either set the stage for quick rate hikes or start a small one.
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Trinh Nguyen, senior economist at Natixis in Hong Kong, said that the markets may be correcting Tuesday’s “over-reaction” to the central bank’s rate rises.
“However, I wouldn’t say it’s a reversal until new information indicates otherwise,” Nguyen added.
Tuesday, U.S. Treasury Secretary Janet Yellen told senators that she expects inflation to continue high and that the Biden administration would likely boost its budget plan inflation projection for this year from 4.7% to 5.0%.
Chinese equities fell 0.03 percent in early trade, retracing previous gains.Investors remain cautious about the economic outlook, which is gradually gaining traction as severe COVID lockdowns are gradually eased.
Stephen Innes, managing partner at SPI Asset Management, wrote in a note, “It seems as though the tide is shifting on the mainland, but the general tone remains cautiously positive, with the emphasis on ‘cautiously.‘“
Meanwhile, Hong Kong stocks were bolstered by Beijing’s regulatory loosening, with IT firms surging as a result. The Hang Seng Index increased by 2%, while the Hang Seng Tech Index rose by 4%.
After China’s gaming authority gave publishing licences for 60 games on Tuesday, Bilibili (NASDAQ:BILI) Inc. shares in Hong Kong went up by more than 10% on Wednesday, making it the leader among gaming companies.
Euro Stoxx 50 futures declined by 0.3%, while pan-region Euro Stoxx 50 futures increased by 0.5%.
The yen reached a new 20-year low against the dollar at 133 and a seven-year low against the euro as traders anticipated the ECB meeting, which is expected to leave Japan alone among its major countries in maintaining ultra loose monetary policy.
The Federal Reserve of the United States is projected to boost its benchmark funds rate by 50 basis points next week and again in July.
The benchmark 10-year US Treasury yield was 3.003 percent, down from a four-week high of 3.064 percent on Tuesday, after Target Corp (NYSE: TGT) warned about excess inventory and announced price cuts, providing relief to investors who believe inflation has peaked.
On Wednesday, oil prices went up because investors expected to hear that U.S. oil stocks were low and because forecasts of strong demand for the coming driving season helped.
Brent crude August futures were up 59 cents, or 0.48 percent, to $121.15 a barrel by 05:33 GMT on Wednesday, after reaching a record high on Tuesday.
The price of U.S. West Texas Intermediate oil for July rose by 66 cents, or 0.55 percent, to $120.09 per barrel after reaching its highest level since March 8 the previous session.
The spot price of gold XAU= fell 0.23 percent to $1,847.64 per ounce.
