Stocks Rise as Markets Bet on More Gradual Rate Hikes

Passers-by wearing protective face masks walk past an electronic board showing Japan’s Nikkei stock average, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan, July 14, 2022. REUTERS/ issei cato

SINGAPORE, July 29 (Reuters) – Asian stocks followed Friday’s lead of a late rally on Wall Street as markets focused on a potential slowdown in the pace of rate hikes rather than a U.S. recession. after data showed its economy shrinking for a second. straight quarter.

MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) rose 0.41%. Japan Nikkei Stock Average (.N225) opened 0.36%, while the Seoul index (.KS11) and the Australian index (.AXJO) opened 0.75% and 0.76% respectively.

Economists debate whether the world’s largest economy is already in recession or on the verge of it, as it battles the highest inflation in four decades and gross domestic product contracts, at an annualized rate of 0.9% last quarter. , following a 1.6% contraction in the quarter before that. read more

The Federal Reserve delivered another aggressive 75 basis point rate hike this week, the third this year.

China, meanwhile, still amid COVID-19 outbreaks and lockdowns, did not mention its full-year GDP growth target after a high-level Communist Party meeting and said it will instead strive to achieve the best possible results for the economy. this year. read more

However, US stocks rose this week as comments from Federal Reserve Chairman Jerome Powell sparked speculation that rate hikes would start to slow and eventually turn into rate cuts in 2023. Amazon Stock (AMZN.O) and apple (AAPL.O) soared 12% and 3% each hours after the tech giants reported earnings that beat expectations.

The Dow Jones Industrial Average (.DJI) rose 332.04 points, or 1.03%, to 32,529.63, the S&P 500 (.SPX) gained 48.82 points, or 1.21%, to 4,072.43 and the Nasdaq Composite (.IXIC) it added 130.17 points, or 1.08%, to 12,162.59.

But analysts warned that the rally could be short-lived.

“Financial markets have taken the combination of the…(Fed) announcement and…negative US GDP print as confirmation that policymakers will ease their aggressive monetary tightening cycle soon.” Our feeling, however, is that such hopes are premature and that some of this year’s dominant trends, in particular the rise of the US dollar, will reassert themselves before long,” Capital Economics said in a note.

The dollar held near a six-week low against the yen for similar reasons, trading at 134.39 yen, rebounding 0.13% after an overnight drop of 1.74%, the biggest since March 2020. a low of 134.2 on Thursday, the weakest since June 17. Read more

US Treasuries fell on weak economic data, with the benchmark 10-year Treasury note yield falling to 2.6759%. The yield on the two-year note, which normally moves in step with interest rate expectations, was 2.8703%.

“There’s this seesaw right now with concerns about inflation and growth,” said Tom Nash, fixed income portfolio manager at UBS Asset Management in Sydney, with surprisingly low US growth numbers putting the spotlight on in this last.

“When it comes to inflation concerns, yields are up, when it comes to growth concerns, yields are down. What we’re seeing right now is the market is putting less emphasis on inflation and more on growth.” “.

Brent crude futures rose 0.8% to $108 a barrel and US West Texas Intermediate (WTI) crude rose 1.08% to $97.46.

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Additional reporting by Tom Westbrook; edited by Richard Pullin

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