Asian stock markets continued to build on the week’s positive momentum on Thursday, undaunted by higher-than-expected US wholesale inflation figures. Investors remained optimistic that the Federal Reserve would refrain from further interest rate hikes. Adding to the positive sentiment, China’s significant sovereign wealth fund made strategic investments in the nation’s largest banks, fueling speculation about potential support for the struggling mainland markets.
Market confidence has been on the rise in recent days, partly due to a US jobs report last Friday that landed within the Goldilocks range, not too hot and not too weak. Additionally, several central bank policymakers have expressed support for a pause in monetary tightening.
In the most recent statements, Boston Fed chief Susan Collins emphasized greater patience in light of near-peak interest rates, while Atlanta Fed President Raphael Bostic suggested that further rate hikes were unnecessary unless inflation surged. Governor Christopher Waller adopted a “wait-and-see” approach.
Although the producer price index exceeded expectations on Wednesday, analysts viewed it as an anomaly within an overall disinflationary environment. The focus now shifts to the release of consumer price data later on Thursday.
In contrast to previous months, Wall Street responded positively to the PPI data, highlighting a shift away from the risk-off reaction that had followed above-expectations figures. The Federal Reserve’s recent meeting minutes revealed a commitment to keeping rates elevated until inflation is under control. However, debate continues on whether the central bank will raise rates further, given that they are already at a 22-year high.
Stephen Innes of SPI Asset Management suggested that debating a single 25-basis-point rate hike in 2023 might be inconsequential. He argued that if the Fed’s current policy stance has been effective in controlling inflation, one more incremental hike won’t make a substantial difference. Conversely, if inflation remains uncontrolled, additional measures will be needed.
Asian markets continued their upward trajectory, with Tokyo, Seoul, Sydney, Singapore, Taipei, and Jakarta posting gains. Hong Kong and Shanghai also rallied after China’s Central Huijin Investment, an arm of the $1.4 trillion China Investment Corp, purchased shares in the country’s major banks, aimed at boosting market sentiment amid concerns about the economy.
The national team’s investment is seen as a significant confidence booster for the market, especially in light of the government’s consideration of a large sovereign bond issue to support infrastructure projects and stimulate economic growth.
Meanwhile, oil prices retreated, reversing their earlier gains, as concerns over potential disruptions in oil supplies due to the Israel-Hamas conflict eased. Both major oil contracts had initially surged following a surprise attack by Hamas on Israel but have since pulled back, with Brent now trading below its Friday closing price.
