Asian markets mostly rise on interest rate, inflation hopes

“The good news is that China will begin to come out of lockdowns at some point, and there will be an injection of stimulus of some form by the authorities to reboot communities and the economy. The light at the end of the tunnel is reasonably bright for China,” said Clifford Bennett, chief economist at ACY Securities.

But Bennett quickly added: “Do not expect a return to rampant growth however.”

Japan’s benchmark Nikkei 225
JP:NIK
jumped 1.6% in morning trading. Australia’s S&P/ASX 200
AU:XJO
added 0.3% and South Korea’s Kospi
KR:180721
surged 1.2%. Hong Kong’s Hang Seng
HK:HSI
rose 0.3%, while the Shanghai Composite
CN:SHCOMP
shed 0.2%. Stocks slipped in Malaysia
MY:FBMKLCI,
but advanced in Singapore
SG:STI,
Taiwan
TW:Y9999
and Indonesia
ID:JAKIDX.

In Tokyo trading, shares of Shionogi
JP:4507
dropped 15% after the Japanese pharmaceutical company reported that animal tests for its experimental oral drug to treat COVID-19 showed it may risk fetal development. Japanese media reported the drug won’t be prescribed to pregnant people or those who may be pregnant.

Stocks ended slightly lower on Wall Street after investors weighed the inflation data for March, although overall it remained at its highest level in 40 years. Some analysts urged caution.

“”The fact remains that pricing pressures are still elevated at its highest level in 40 years and the near-term outlook for an aggressive tightening of policies to cool demand stays unaltered. Comments from Fed Governor Lael Brainard overnight, who has been a well-known dovish voice in the Fed, continued to reveal a firm stance in getting inflation down,” said Yeap Jun Rong, market strategist at IG in Singapore.

The S&P 500
SPX
fell 0.3% after having been up 1.3% earlier in the day. The pullback extends the benchmark index’s losing streak to a third day, reflecting investors’ worries about the potential economic collateral damage as the Federal Reserve tackles high inflation more aggressively.

The Dow Jones Industrial Average
DJIA
and the Nasdaq composite
COMP
each fell 0.3% after shedding early gains.

The indexes initially rallied following the release of the report, which showed inflation last month was again at its highest level in generations, driven by soaring gasoline prices in particular. Still, the reading was relatively close to economists’ expectations.

Another faint silver lining was that inflation wasn’t as bad as economists expected, when ignoring the costs of food and fuel. Known as “core inflation,” this is the reading that the Federal Reserve pays more attention to when setting policy because it’s less volatile. And core inflation on a month-over-month basis moderated to its slowest level since September.

“Hopefully this is as bad as it gets,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

“The risk is that a red hot labor market grows cold under the force of those higher food, fuel, and financing costs. This is a time when economic resilience will be tested.”

Stocks in recent days have been trading in the opposite direction of Treasury yields, which have climbed to their highest levels since well before the pandemic. Yields jumped as investors brace for the Federal Reserve to hike short-term rates at a faster pace than typical and to aggressively pare its trove of bonds, whose buildup helped keep longer-term rates low.

But Treasury yields pulled back on Tuesday following the inflation report. The 10-year yield slid to 2.72% from 2.77% late Monday. It was as high as 2.83% overnight, before the inflation report’s release. The 10-year yield nevertheless remains well above the 1.51% level where it began the year.

Unease continues to hang over global markets about the war in Ukraine. In energy trading, benchmark U.S. crude
CLK22
added 43 cents to $101.03 a barrel. It climbed 6.7% to settle at $100.60 on Tuesday, keeping the pressure on high inflation. Brent crude
BRNM22,
the international standard, rose 45 cents to $105.09.

Higher interest rates from the U.S. Federal Reserve would slow the economy, which would hopefully knock down high inflation. Consumer prices were 8.5% higher in March than a year earlier, accelerating from February’s 7.9% inflation rate and the highest since 1981.

To bring it down, the Fed revealed in the minutes from its latest meeting that it’s prepared to hike short-term rates by half a percentage point, double the usual amount, at some upcoming meetings, something it hasn’t done since 2000.

The worry is the Federal Reserve may be so aggressive about hiking interest rates that it forces the economy into a recession.

In currency trading, the U.S. dollar
USDJPY
edged up to 125.58 Japanese yen from 125.39 yen.