Asian stocks rose on Friday after data showing further contraction in the US economy boosted hopes that the Federal Reserve will slow the pace of interest rate hikes.
After a prolonged period of pessimism on the trading floor, fueled by rising inflation and the central bank’s monetary tightening campaign, investors are beginning to speculate that the market may have bottomed out.
The world’s leading economy shrank 0.9 percent from April to June after contracting 1.6 percent in the first quarter as it was hit by four decades of spike in inflation and rising borrowing costs.
But the reading was taken as a sign of good news as it could give the Fed room to take its foot off the pedal as Treasury yields – which are considered a barometer of future interest rates – ease.
Officials are expected to continue raising rates, but analysts estimate they will announce a 50 basis point hike in September, compared with 75 at the last two meetings.
And analysts said the fast, sharp pace of hikes would allow the bank to start cutting earlier in 2023, while others said any recession was likely to be shallow and short.
The news saw all three of Wall Street’s main indexes rise more than a percent, with tech companies — vulnerable to higher interest rates — taking the lead.
Gains extended a rally on Wednesday, which came after Fed Chair Jerome Powell indicated the bank could slow down its tightening.
Most of Asia followed suit, with Tokyo, Sydney, Seoul, Singapore, Taipei, Jakarta and Wellington. However, Hong Kong fell behind and Shanghai struggled.
The prospect of US interest rates not rising as quickly as previously expected hit the dollar, which has risen sharply against most other currencies in recent months.
The greenback fell below 135 yen on Thursday for the first time since July 6, after hitting a 24-year high of 139.39 yen just two weeks ago.
A second consecutive contraction is widely viewed as a technical recession, although it is not officially considered as such in the United States until identified as such by the National Bureau of Economic Research.
But as debate rages on on the issue, the general consensus is that the economy is struggling.
“The more important point is that the economy has been rapidly decelerating amid four decades of high inflation, soaring borrowing costs and a general tightening of financial conditions,” wrote BMO Capital Markets’ Sal Guatieri.
The US economy’s pullback comes as China also struggles, hit by painful Covid-related lockdowns in major cities like Shanghai and Beijing that have hit all sectors and supply chains.
On Thursday, the country’s leaders gave a gloomy assessment of the world’s second largest economy but offered no plans to stimulate growth, leaving traders disappointed.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: up 0.5 percent at 27,944.55 (breakthrough)
Hong Kong – Hang Seng Index: down 1.4 percent at 20,343.08
Shanghai — Composite: down 0.4 percent at 3,269.18
Dollar/Yen: UP at 134.36 yen from 134.25 yen on Thursday
Euro/Dollar: DOWN at $1.0193 from $1.0197
Pound/dollar: DOWN at $1.2167 from $1.2177
Euro/Pound: UP at 83.77p from 83.70p
West Texas Intermediate: FALSE, up 0.8 percent at $97.16 a barrel
North Sea Brent Crude: up 0.3 percent to $107.50 a barrel
New York – Dow: up 1.0 percent at 32,529.63 (close)
London – FTSE 100: FLAT at 7,345.25 (close)
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