Markets in Asia drifted on Wednesday, with investors trying to navigate an uncertain economic environment as central banks hike interest rates to combat runaway inflation, in turn fueling fears of a possible recession.
But while Federal Reserve officials and their colleagues are expected to tighten monetary policy for the remainder of the year, talk is mounting that they will be able to ease rates — and maybe even cut rates — in 2023 if the pace price increases continue to fall.
Minutes from the July Fed meeting will be flipped through later in the day after their release, with investors hoping to get a glimpse of policymakers’ thinking and an idea of their plan for next month’s meeting.
“We expect the … minutes to be hawkish,” said Carol Kong of the Commonwealth Bank of Australia. “We wouldn’t be surprised if the protocols (officials) considered a 100 basis point hike in July.”
The bank raised interest rates by 75 points in June and July.
Better-than-expected earnings by retail giants Walmart and Home Depot fueled optimism that US consumers will remain resilient even as inflation remains high and borrowing costs rise.
However, Asia struggled to keep up with Wall Street’s upbeat lead as worries about the Chinese economy dampened appetite.
The country’s central bank announced a surprise interest rate cut on Monday, and a report on Tuesday said Premier Li Keqiang has urged six key provinces — which account for about 40 percent of the economy — to strengthen pro-growth policies.
However, analysts say markets are more concerned about the debilitating impact of lockdowns and other strict containment measures being implemented as part of the government’s zero-Covid strategy.
“Visibility of the development of China’s zero-Covid policy is low, and recent reports suggest that containing the virus remains one of the country’s top policy priorities,” said Adam Montanaro, Investment Director of Global Emerging Markets Equities at ardn.
“Not only do investors hate uncertainty, but the negative economic impact of these policies is becoming increasingly evident.”
Hong Kong was flat and Shanghai slipped while there were also losses in Seoul and Wellington.
Tokyo, Singapore, Taipei and Manila rose.
Stocks have rallied for several weeks since hitting their June lows and while the initial rebound was widely viewed as a bear market rally, there is hope that they have already bottomed out.
“It looks like a floor, acts like a floor and trades like a floor, then it probably is a floor,” OANDA’s Edward Moya said in a note.
“Calls for a bear market rally are suddenly quiet these days. The risks of the Fed sending the economy into recession are receding as inflation slowly eases.
“The Fed’s soft landing seems doable and that has allowed this rally to continue.”
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: up 0.8 percent at 29,101.33 (breakthrough)
Hong Kong – Hang Seng Index: FLAT at 19,837.16
Shanghai — Composite: down 0.4 percent at 3,263.71
West Texas Intermediate: up 0.3 percent to $86.78 a barrel
North Sea Brent Crude: up 0.2 percent to $92.51 a barrel
Euro/dollar: rise to $1.0174 from $1.0166 on Tuesday
Pound/dollar: rise to $1.2108 from $1.2092
Euro/Pound: DOWN at 84.01p from 84.04p
Dollar/Yen: DOWN at 134.06 yen from 134.21 yen
New York – Dow: up 0.7 percent at 34,152.01 (close)
London – FTSE 100: up 0.4 percent at 7,536.06 (close)
— Bloomberg News contributed to this story —
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