Stocks in Asia rose on Monday after Wall Street rallied in response to data suggesting US consumers remained resilient to rising inflation and higher interest rates, easing worries of a possible recession.
Speculation that Saudi Arabia will increase oil production following last week’s Joe Biden visit also provided some relief as crude prices – a key inflation driver in recent months – fell.
Still, investors remain concerned about the economic outlook as Russia’s war in Ukraine seems to see no end, China locks down cities to fight a renewed Covid flare-up and central banks tighten monetary policy quickly.
All three major indexes in New York raced higher on Friday after June retail sales came in ahead of forecasts and banking giant Citigroup’s April-June results beat expectations.
While a strong string of economic data lately has increased bets that the Federal Reserve will raise borrowing costs further, the latest numbers were not seen as big enough to justify a stronger rate hike next week.
Market analysts widely expect the bank to announce a 75 basis point hike, although some have suggested a 1 percentage point hike could be on the cards.
Policymakers have made it clear that their main goal is to bring inflation down from a four-decade high, even if it means slowing growth or even causing a recession.
“Overall, the robust US data…has eased concerns about an imminent recession, but is also unlikely to make further arguments for a 100 basis point hike by the Fed,” said Stephen Innes of SPI Asset Management.
“And it was about as Goldilocks of a mix of headline data risk as one might have expected given the Fed’s dilemma of balancing inflation and growth.”
At the start of trading Hong Kong, Shanghai, Sydney, Seoul, Singapore, Taipei, Jakarta and Wellington were all up. Tokyo was closed for a holiday.
However, uncertainty remains in trading venues as a fresh spike in Covid cases in China raises concerns officials will impose new lockdowns in major cities like Shanghai and Beijing.
A two-month shutdown in Shanghai earlier this year hit the world’s second-largest economy and hit global supply chains hard.
Lanzhou, the capital of northwestern Gansu Province, has ordered its 4.4 million residents to stay home, while a county in Anhui Province went into lockdown from Friday.
Beihai in the southern region of Guangxi also announced lockdowns in parts of two districts home to more than 800,000 people on Saturday.
The expected slump in demand from the world’s largest crude oil importer has weighed on the commodity’s prices, with both major contracts shedding most of their gains following Russia’s invasion of Ukraine.
The downward pressure on oil is fueled by speculation that Saudi Arabia will increase production following Biden’s visit, during which he urged the kingdom to ease price pressures that have been driving inflation.
SPI’s Innes added that production could see a big surge with a deal between OPEC and other major producers ending soon.
“As long as the deal is in place, Saudi Arabia has made it transparent that individual producers with spare capacity should not exceed their quota to offset underproduction elsewhere within the group.
“But that will change from October.”
Meanwhile, Libya is expected to see a surge in production as months of outages come to an end, while the lifting of US sanctions on Venezuela could prompt a return of capacity from the South American country.
– Key figures at 0230 GMT –
Hong Kong – Hang Seng Index: up 0.8 percent to 20,455.99
Shanghai — Composite: up 0.5 percent to 3,245.53
Tokyo – Nikkei 225: Closed for public holiday
Euro/dollar: rise to $1.0107 from $1.0088 on Friday
Pound/dollar: rise to $1.1898 from $1.1865
Euro/Pound: DOWN at 84.96p from 85.00p
Dollar/Yen: DOWN at 138.13 yen from 138.54 yen
West Texas Intermediate: FALSE, up 0.8 percent at $96.81 a barrel
North Sea Brent Crude: FALSE, up 0.3 percent at $100.89 a barrel
New York – Dow: up 2.2 percent at 31,288.26 (close)
London – FTSE 100: up 1.7 percent at 7,159.01 (close)
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