© Reuters. A passerby with a protective face mask walks past an electric screen showing a graph showing Japan’s Nikkei share, amid the coronavirus pandemic (COVID-19), in Tokyo, Japan on February 24, 2022. REUTERS / Issei Kato / Files
By Tom Westbrook
SINGAPORE (Reuters) – Asia’s stock markets picked up their fourth straight in a row with gains on Wednesday, but the recent rise lost momentum as annoying doubts about inflation and pulls from interest rate hikes overshadowed bits and pieces of good news about the global growth outlook.
MSCI̵[ads1]7;s broadest index of Asia-Pacific equities outside Japan rose 0.5% and is on its longest winning streak since February. rose 0.6% and miners led Australian equities around 0.9% higher.
Gains followed a rise in Wall Street and a fall in the dollar as investors pushed concerns about inflation and recession in the back of their minds.
But analysts doubted it could last, and both the dollar and futures were stable in Asia. fell 0.2%, fell 0.4% while futures were flat and European futures rose 0.2%.
“After plunging into last week, equities could bounce further in the short term,” said Shane Oliver, chief economist and head of investment strategy at Australia’s AMP (OTC 🙂 Capital.
“But the risk of inflation, money tightening, the war in Ukraine and Chinese growth remains high and points to a more downside in the stock markets,” he said.
The dollar held tight after an overnight kick, helped by a lack of forecasts for Australian wage growth, which pulled the dollar briefly below $ 0.70.
The dollar stabilized at the euro at 1.0534 dollars and stopped a strong setback for the pound at 1.2480 dollars which followed solid working data on Tuesday.
Inflation figures in the UK and Canada coming later Wednesday may also change interest rate expectations and move currencies. It hovered at 103,370.
“It is still too early to call a long-term peak in the dollar, and retracements should be shallow,” said analysts at Westpac. “But a two-way consolidation between 102-104 is likely in the short term,” they added, referring to the dollar index.
Positive data had helped the short-term mood, with US retail sales meeting forecasts for a solid increase in April and industrial production beating expectations.
Data on Wednesday showed that Japan’s economy shrank less than expected in the first quarter.
Shanghai is also nearing the end of its protracted shutdown, and China’s deputy prime minister made reassuring remarks to technology leaders in the latest sign of a failing pressure.
However, all the good news was offset by the reminder from central bank governor Jerome Powell that controlling inflation would require rate hikes and possibly some pain.
Investors have priced in 50 basis points US interest rate hikes in June and July, and see that the benchmark interest rate for the Fed funds rises by 3% early next year.
Treasuries of all tenors were sold on Tuesday in anticipation of rising interest rates, but the gap in yield between short- and long-term bonds is narrowing as markets price a risk that increases this year will draw on long-term growth.
Benchmark 10-year government bonds were stable in Asia and the yield was just under 3% at 2.9805%.
European interest rates are also rising as the European Central Bank says that an interest rate increase of 50 basis points should not be ruled out.
Commodities have risen in equities this week as markets have found reasons to hold out growth hopes, but oil fell on Tuesday and there were signs of declining momentum on Wednesday.
futures increased 0.7% to $ 112.73 a barrel and futures rose 1.2% to $ 113.83 a barrel.
S&P Global (NYSE 🙂 Ratings cut growth forecasts for China, the US and the eurozone.
“The global economy continues to face an unusually large number of negative shocks,” said chief economist Paul F. Gruenwald.
“Two developments have changed the macro picture,” he said, referring to Russia’s invasion of Ukraine, which sent commodity prices to the top and inflation, which has proven to be higher, broader and more persistent than first thought.