February 2, 2023

Pinoy Trekker

Pinoy Trekker – We go anywhere

Asian equities rise after lower US inflation eased interest rate concerns

Asian stock markets rose on Friday after US inflation fell more-than-expected, raising hopes that the US Federal Reserve may scale back plans for further rate hikes.

Hong Kong’s market benchmark rose 5.4%. Seoul and Sydney rose nearly 3%. Shanghai and Tokyo also made progress. Oil prices rose slightly.

Wall Street’s benchmark S&P 500 index rose 5.5% on Thursday, its best day in 2-1/2 years, after the government reported consumer prices rose 7.7% in October from a year earlier. That was less than the 8% expected by economists and the fourth month of the decline.

The announcement “led to a ‘more dovish’ calibration of interest rate expectations,” IG’s Yeap Jun Rong said in a report.

The Fed and central banks in Europe and Asia are raising interest rates to cool inflation, which is at multi-decade highs. Investors fear they could plunge the global economy into recession. They hope lower inflation could prompt the Fed to ease plans for further hikes.

Forecasters warned Thursday it is too early to say certain prices are under control. Fed officials have said rates may need to stay elevated for some time.

Hong Kong’s Hang Seng Index rose to 16,948.96 and Tokyo’s Nikkei 225 rose 2.7% to 28,186.34.

The Shanghai Composite Index rose 1.2% to 3,073.36 after the ruling Communist Party vowed to change quarantine and other anti-virus tactics to reduce the cost of China’s tough “zero-COVID” strategy, which has disrupted the economy.

Seoul’s Kospi rose 2.8% to 2,471.10 and Sydney’s S&P-ASX 200 rose 2.4% to 7,128.40. New Zealand, Singapore and Jakarta gained while Bangkok declined.

On Wall Street, the S&P rose to 3,956.37, fueled by big gains for tech heavyweights. Amazon was up 12.2%, Apple was up 8.9% and Microsoft was up 8.2%.

The Dow Jones Industrial Average was up 3.7%, or more than 1,200 points, to 33,715.37.

The tech-stock-dominated Nasdaq Composite rose 7.4% to 11,114.15 on its best day since March 2020, as Wall Street recovered from a plunge earlier in the coronavirus pandemic.

Investors were reassured that US inflation fell from its June peak of 9.1%, although forecasts said the Fed’s campaign to cool hikes was far from over.

Traders expect the Fed to hike interest rates in December, but by a narrower margin of half a percent after four hikes of 0.75 percentage points, three times their usual range. This benchmark is in a range of 3.75% to 4%, up from near zero in March.

The Fed is attempting to slow economic activity to ease price pressures.

The latest numbers are a sign the Fed is “on track,” but it will face “many variables” over the next few quarters, Oanda’s Edward Moya said in a report. He said the key interest rate could be raised to 5% and “if inflation turns out to be a sticker, it could be as high as 5.50%”.

Core inflation, which excludes volatile food and energy prices and is more closely monitored by the Fed, came in at 6.3% year-on-year, down from September’s 6.6% and below the consensus forecast of 6.5%. Core prices rose 0.3% month-on-month, half of September’s 0.6% gain.

The yield on the 10-year government bond, which helps set interest rates on mortgages and other loans, fell to 3.82% from 4.15%. The two-year yield, which is closer to expectations for Fed action, fell to 4.32% from 4.62% and was on track for its sharpest decline since 2008.

In energy markets, US crude, the benchmark in electronic trading on the New York Mercantile Exchange, gained 29 cents to $86.76 a barrel. The contract rose 64 cents on Thursday to $86.47. Brent crude, the price basis for international oil trading, rose 27 cents to $93.94 a barrel in London.

The dollar rose to 142.08 yen from 141.83 yen on Thursday. The euro rose to $1.0186 from $1.0180.

Credit: AP/Ahn Young-joon