A screen on the floor of the New York Stock Exchange in New York, New York, USA, 13 June 2022.
(Photo: EPA-EFE / Justin Lane) Chinese tech firms listed in Hong Kong jumped as much as 4.4% while the MSCI Asia Pacific Index headed for a third weekly gain. Goldman Sachs strategists upgraded Hong Kong stocks to market-weight on bets for a reopening of China’s economy.
China also reduced the amount of its short-term cash injections to the banking system, as the nation’s government bond market steadied following this week’s steep losses.
Stocks edged higher in Japan, Australia as well as South Korea, suggesting little reaction to news that North Korea had launched a missile.
Treasury yields held gains across the curve during morning trading in Asia after the previous day’s jump when St Louis Fed president James Bullard said policymakers should increase interest rates to at least 5% to 5.25% to curb inflation. He also warned of further financial stress ahead. Bond yields in Australia and New Zealand followed suit.
The dollar slipped after rallying on Thursday. Oil was poised for a weekly loss as concerns over a worsening demand outlook filtered through the crude market.
With inflation only starting to ease and a gauge of US retail sales increasing at the fastest pace in eight months, Fed speakers in recent days have emphasised that they need to go further to extinguish price pressures. Bullard’s comments came a day after San Francisco Fed President Mary Daly said a pause in rate hikes was “off the table”. Their hawkish tone was echoed by Minneapolis Fed president Neel Kashkari on Thursday afternoon.
“The market believes that inflation is on the downtrend. We also believe that, but the fact of inflation having peaked is not a reason for the Fed to turn and cut rates,” Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, said on Bloomberg Radio. “That’s the fundamental disconnect that still exists between the Fed and the market.”
On Thursday, fresh data showing weekly jobless claims came in below the forecast further underscored the strength of the labour market. US mortgage rates posting their biggest weekly decline since 1981 briefly improved sentiment, even though Freddie Mac’s chief economist said there’s a long road ahead for the housing market.
If the Fed keeps increasing at the current pace, “by the time they get the information that they’ve been successful in slowing the economy and slowing inflation, it might be too late”, Ellen Hazen, chief market strategist at FL Putnam Investment Management, said on Bloomberg Television. “It’s just too soon to know exactly how this is going to play through the economy and that’s the biggest risk.”
In Japan, inflation hit its fastest clip in 40 years in October. The outcome puts the Bank of Japan in an even more awkward position as it tries to explain the need to stick with monetary stimulus to pursue stable price growth. BM/DM