Asian stocks rise as investors weigh impact of hawkish central banks

Asian stocks rose on Wednesday, buoyed by a rally on Wall Street, but gains were dampened by fears that aggressive central bank policy tightening could stifle global growth and raise stagflation risks. .

The World Bank on Tuesday cut its global growth forecast by almost a third to 2.9% for 2022, warning that Russia’s invasion of Ukraine has worsened the damage of the Covid-19 pandemic and that many countries are now facing recession.

Nonetheless, US equities rallied to end higher for a second consecutive day, supporting the mood in Asia.

MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 1.15%, recouping most of its losses from the previous session, while Japan’s Nikkei 225 index rose 1%.

Australia’s S&P/ASX 200 index rose 0.72%, recovering half of its fall on Tuesday after the central bank unexpectedly raised interest rates to the highest level in 22 years and announced a tightening to come.

India’s central bank is also expected to raise rates later today (0430 GMT) in a bid to rein in hot prices, with further hikes expected.

On Thursday, the European Central Bank meets and markets expect it to at least lay the groundwork for a quick rate hike, if not start them with a small hike.

“I think the hikes coming from central banks, or the frontloading, are actually positive because they will allow us to somewhat curb inflationary pressures,” said Trinh Nguyen, senior economist at Natixis in Hong Kong, adding that markets could correct from Tuesday “overreaction”.

“But I wouldn’t call it a reversal unless a data change tells us otherwise,” Nguyen said.

U.S. Treasury Secretary Janet Yellen told senators on Tuesday that she expected inflation to remain high and that the Biden administration would likely raise the inflation forecast to 4.7% for this year in its budget proposal.

Chinese stocks have been buoyed by hopes that its economy will slowly get back on track as tough Covid-19 restrictions are eased. Hong Kong’s Hang Seng Index rose 1.22%, while China’s benchmark CSI300 index edged up 0.47%.

“The rebound in risk sentiment is driven by a more positive tilt from China where the outlook is expected to brighten as Covid restrictions ease, and state-owned banks are forced to increase lending again,” said Stephen Innes, managing partner at SPI Asset Management. in a note.

In currencies, the yen hit a new 20-year low against the dollar at 133 and slid to a seven-year low against the euro as traders awaited the ECB meeting, which is expected to leave Japan alone among its major peers to stick to the ultra-accommodative monetary policy.

The US Federal Reserve is expected to raise its key rate by 50 basis points next week and again in July.

The benchmark US 10-year yield was 2.992%, down slightly from a four-week high of 3.064% on Tuesday after Target Corp warned of excess inventory and said it would cut prices , offering some relief to those who think inflation may be peaking.

Brent crude futures rose 0.11% to $120.72 a barrel and US West Texas Intermediate CLc1 futures gained 0.23% to $119.66.

Spot gold XAU= fell 0.18% to US$1,849.1 an ounce.