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Asian equities hit 9-month high as recession fears wane


2023-01-27T05:16:57Z

A man looks at electric monitors displaying Japan’s 10-year government bond yield on gilts and the exchange rate between the Japanese yen against the U.S. dollar outside a brokerage in Tokyo, Japan January 18, 2023. REUTERS/Issei Kato

Asian stocks rose on Friday and were poised for their fifth straight week of gains after data highlighted a resilient U.S. economy, boosting investor sentiment ahead of next week’s slate of central bank policy meetings.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose as much as 0.55% to hit an almost nine-month high of 562.10, and was last at 559.39.

The index, which fell nearly 20% last year, is up nearly 11% so far this month and is on course for its best-ever January performance. Japan’s Nikkei (.N225) rose 0.05%.

European stock futures indicated that stocks were set to rise, with the Eurostoxx 50 futures up 0.3%, German DAX futures 0.28% ahead and FTSE futures up 0.16%.

The U.S. economy grew faster than expected in the fourth quarter as consumers boosted spending on goods, data showed, but it could be the last quarter of solid GDP growth before the lagged effects of the Federal Reserve’s jumbo interest rate hikes are fully felt.

A separate report showed that labour market remains tight and could lead the Fed to keep interest rates higher for longer.

Ashwin Alankar, head of Global Asset Allocation at Janus Henderson Investors, said the headline GDP suggested robust economic activity and if a recession were to materialize it would be a shallower one.

“Overall GDP data was a ‘tale-of-two cities’ – good overall growth stemming from less-than-ideal drivers and prices mitigating but at a rate that is worrisome.”

Thursday’s set of data has raised investor hopes of a soft landing – a scenario in which inflation eases against a backdrop of slowing but still resilient economic growth.

Futures are pricing in a 94.7% probability of a 25-basis-point hike next Wednesday and see the Fed’s overnight rate at 4.45% by next December, or lower than the 5.1% rate Fed officials have projected into next year.

Data on U.S. personal consumption expenditures (PCE) due at 1330 GMT will provide further clues on inflation.

“The disinflation impulse is likely to stretch further, as has been evident from CPI (Consumer Price Index) releases lately, likely continuing to build a case for a 25 basis point rate hike by the Fed next week,” Saxo strategists said.

Next week will also feature Bank of England and European Central Bank meetings that will indicate the monetary policy path those central banks are likely to take.

Hong Kong’s Hang Seng Index (.HSI) was little changed after surging more than 2% on Thursday. Mainland China markets are due to resume trading on Monday after the Lunar New Year holiday.

Elsewhere in Japan, core consumer prices in Tokyo, a leading indicator of nationwide trends, rose 4.3% in January from a year earlier, marking the fastest annual gain in nearly 42 years.

The Japanese yen strengthened 0.1% to 134.04 per dollar as the data reinforced market expectations that quickening inflation could nudge the Bank of Japan to move away from its ultra-easy policy.

“We still think the policy change is a long way off,” ING regional head of research Robert Carnell said. “The spring salary negotiations are key to watch as wage growth is a prerequisite for sustainable inflation.”

The dollar index , which measures the U.S. currency against six other peers, rose 0.23%, while the euro fell 0.22% to $1.0866.

Sterling was last trading at $1.23805, down 0.25% on the day.

Oil prices rose on expectations of a boost to demand from China’s reopening and after the strong U.S. data. U.S. West Texas Intermediate crude rose 0.41% to $81.34 per barrel and Brent was at $87.83, also up 0.41% on the day.