© Reuters. A passerby wearing a protective face mask walks past an electric screen displaying a graph showing the average Nikkei share in Japan amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan February 24, 2022 REUTERS/Issei Kato/Files
By Tom Westbrook
SINGAPORE (Reuters) – Asian stock markets posted their fourth straight session of gains on Wednesday, but the recent rally lost momentum as lingering doubts over inflation and a slowing rate hike overshadowed the good news about global growth prospects.
MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 0.5% and is off to its longest winning streak since February. rose 0.6% and miners led Australian stocks about 0.9% higher.
The gains followed a surge on Wall Street and a fall in the dollar as investors pushed worries about inflation and recession to the back of their minds.
But analysts doubted that would last, and the greenback and futures were stabilizing in Asia. fell 0.2%, fell 0.4% while futures were flat and European futures rose 0.2%.
“After plunging last week, equities could rebound again in the near term,” said Shane Oliver, chief economist and head of investment strategy at AMP (OTC:) Capital in Australia.
“But risks from inflation, monetary tightening, war in Ukraine and Chinese growth remain elevated and still point to a decline in stock markets,” he said.
The dollar remained firm after an overnight kick, helped by missing forecasts for Australian wage growth, which briefly took the dollar below $0.70.
The greenback stabilized on the euro at $1.0534 and halted a strong rebound in sterling to $1.2480 that followed strong jobs data on Tuesday.
Inflation figures from Britain and Canada due later on Wednesday could also shift rate expectations and move currencies. The glide at 103.370.
“It is still far too early to call a long-term dollar peak and retracements should be shallow,” Westpac analysts said. “But a two-way consolidation between 102 and 104 is likely in the near term,” they added, referring to the dollar index.
Positive data helped the near-term mood, with US retail sales meeting expectations of a solid increase in April and industrial production beating expectations.
Data on Wednesday showed Japan’s economy contracted less than expected in the first quarter.
Shanghai is also nearing the end of its prolonged lockdown and China’s vice premier has made soothing comments to tech executives in the latest sign of less pressure.
However, any good news was offset by Federal Reserve Chairman Jerome Powell’s reminder that controlling inflation would require rate hikes and possibly pain.
Investors have been anticipating US rate hikes of 50 basis points in June and July and see the benchmark federal funds rate falling 3% early next year.
Treasuries of all maturities were sold on Tuesday in anticipation of a rate hike, but the yield spread between short- and long-term bonds is narrowing as markets assess a risk that rises this year will hamper long-term growth.
Benchmark 10-year Treasuries were flat in Asia and the yield was just below 3% at 2.9805%.
European yields are also up as the European Central Bank said a 50 basis point rate hike should not be ruled out.
Commodities rebounded along with stocks this week as markets found reason to sustain their growth hopes, but oil fell on Tuesday and there were signs of a slowdown on Wednesday.
futures rose 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, US and Eurozone.
“The global economy continues to face an unusually large number of negative shocks,” said chief economist Paul F. Gruenwald.
“Two events changed the macroeconomic situation,” he said, namely Russia’s invasion of Ukraine which pushed up commodity prices and inflation, which turned out to be higher. , larger and more persistent than previously thought.
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