As Economic Concerns Mount, the Stock Surge Is Losing Steam
On Wednesday, Asian stock markets gained for the fourth straight day. Still, the current advance slowed as lingering concerns about inflation; moreover, the drag from rate hikes overwhelmed bits and pieces of positive news about the global economic prospects.
MSCI’s broadest index of Asia-Pacific stocks outside of Japan gained 0.5 percent, extending its winning streak to six months. The Nikkei in Japan gained 0.6 percent, while miners pushed Australian shares higher by 0.9 percent. Investors pushed fears about inflation and recession to the back of their minds after a spike on Wall Street and a drop in the dollar. Analysts doubted it would persist, and the dollar and futures in Asia were both steadying. Futures on the S&P 500.
What To Expect?
“After sliding into last week, shares may have a further near-term rebound,” said Shane Oliver, chief economist and head of investment strategy at Australia’s AMP Capital. “However, fears about inflation, monetary tightening, the Ukraine crisis, and Chinese growth remain high, meaning that stock markets will continue to tumble,” he cautioned.
Positive statistics, such as U.S. retail sales matching projections for a strong gain in April and industrial production above expectations, have improved the short-term sentiment. According to data released on Wednesday, Japan’s economy dropped less than projected in the first quarter. Shanghai is also nearing the conclusion of its long-running shutdown; moreover, China’s vice-premier issued reassuring remarks to IT CEOs in the latest hint of easing tensions. Any good news was tempered by Federal Reserve Chair Jerome Powell’s admonition; according to him, managing inflation will necessitate rate hikes and maybe some pain.
Investors anticipate two 50-basis-point rate rises in June and July; meantime, the benchmark Fed funds rate approached 3% by early next year. On Tuesday, all tenors of Treasuries were sold to expect higher rates. Still, the yield spread between short- and long-dated bonds is shrinking as markets price in the possibility that rate rises this year could slow longer-term growth. In Asia, benchmark 10-year Treasuries were stable, with the yield (US10YT=RR) hovering just below 3% at 2.9805 percent. European rates are also climbing as the European Central Bank says a rate rise of 50 basis points is not out of the question.
