Shares rose on Friday after another Wall Street rally as investors try to digest the central bank’s actions to combat rising inflation and the growing possibility that those actions will trigger a recession.
Global markets have been in turmoil for months in a perfect crisis storm that has led observers to predict a sharp decline, including the Ukraine war, China’s lockdown-related economic woes, supply chain snarls and rising energy costs.
Expectations that the Federal Reserve and other central banks will have to hike rates further have many traders worried the pain could linger for some time as Treasury yields — key indicators of future interest rates — continue to rise.
This week Fed Chair Jerome Powell told lawmakers that a recession was “certainly a possibility” and indicated officials were poised to proceed with big rate hikes after raising them by three quarters of a point this month.
But analysts said speculation about a looming recession had helped push yields lower in recent days, prompting traders to scale back expectations for how long the rate hikes would last.
Demand concerns have also helped push oil prices — a key inflation driver — lower, with both major contracts down about 15 percent over the past week.
In addition, President Xi Jinping made statements this week proposing an end to the crackdown on China in the technology sector and possible new measures to stimulate the economy.
“As we’ve been saying for some time, it would likely take an incredibly optimistic mix of a seamless growth recovery in China, a peak in US bond yields and much weaker oil prices for equities to return to any form,” said Stephen Innes of SPI asset management.
“While it’s a tall order and still an unlikely short-term combination scenario, the fall in commodity prices, especially oil, should be music to the Fed’s ears, so some could tick a box or two.”
Early in Asian trading, investors turned to Wall Street, where all three major indices ended with healthy gains, including a more than 1 percent gain versus the Nasdaq.
Hong Kong was among the biggest gainers thanks to a rally by tech giants including Alibaba, Tencent and NetEase.
Tokyo, Mumbai, Shanghai, Sydney, Seoul, Singapore, Taipei, Manila and Jakarta were also in good spirits, while in Europe London, Paris and Frankfurt were all up in the morning.
Lower expectations for US interest rates and bets on a recession also sent the dollar down against the safe-haven yen after rising to a 24-year high against the Japanese unit earlier in the week.
“Assuming that the Fed will have to change course sooner than late 2023 is not an unreasonable assumption,” said Jeffrey Halley of OANDA.
“The Fed and a number of central banks around the world got inflation completely wrong and have made efforts to reverse the error. In this context, given their track record, it is perfectly reasonable to assume that they will err the other way.”
– Key figures at 0810 GMT –
Tokyo – Nikkei 225: up 1.2 percent at 26,491.97 (close)
Hong Kong – Hang Seng Index: up 2.1 percent at 21,719.06 (close)
Shanghai – Composite: up 0.9 percent at 3,349.75 (close)
London – FTSE 100: up 0.6 percent to 7,063.88
Dollar/Yen: DOWN at 134.51 yen from 134.94 yen late Thursday
Pound/dollar: rise to $1.2269 from $1.2259
Euro/dollar: rise to $1.0528 from $1.0526
Euro/Pound: DOWN at 85.77p from 85.80p
West Texas Intermediate: up 0.1 percent to $104.33 a barrel
North Sea Brent Crude: FALSE, up 0.2 percent at $109.88 a barrel
New York – Dow: up 0.6 percent at 30,677.36 (close)
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