SINGAPORE – Asian stock markets struggled to bear recent gains in the fourth straight session on Wednesday and the US dollar remained stable as skepticism about inflation and rising rates reversed the global outlook.
The broader MSCI index of Asia-Pacific shares outside Japan dropped earlier gains to flat trading in mid-morning. Japan’s Nikkei rose 0.3%, although miners helped boost Australian shares by about 0.6%.
Overnight Wall Street indexes jumped and the dollar bounced back from nearly two-decade highs as investors pushed worries behind their minds about inflation and recession.
But analysts doubted it could be sustained, and US stocks ran out of steam as Asian traders woke up. The S&P 500 futures were down 0.2% at the start of the Asia session and the Nasdaq futures were down 0.4%.
Shane Oliver, chief economist and head of investment strategy at AMP Capital Australia, said:
“But the risks surrounding inflation, fiscal austerity, the war in Ukraine and Chinese growth are high and still point to a worsening of the stock market,” he said.
Australian wage data helped by the missing forecast, the dollar stabilized after an overnight kick, which pushed the Aussie dollar down.
The greenback was steady at ইউরো 1.0536 in the euro and gave a strong bounce break for Sterling at $ 1.2480. The dollar index is at 103.370.
“Long-term peaks in the dollar are still too early and retreats should be shallow,” said Westpac analysts. “But some bilateral consolidation between 102-104 is probably near term,” they added, referring to the dollar index.
Positive data helped boost short-term mood, with US retail sales forecasting a strong growth in April and losing industrial production expectations.
Wednesday’s data showed that Japan’s quarterly traders were smaller than expected.
Shanghai is also nearing the end of its lockdown and has made calm remarks to technology executives on the latest sign of easing pressure on China’s vice-premier.
However, any good news was offset by a reminder from Federal Reserve Chair Jerome Powell that there would be a demand for a rate hike to control inflation and there would probably be some pain.
Investors set the price at a 50 basis point US rate hike in June and July, and see the benchmark Fed fund rate knocking 3% early next year.
All tenor treasuries were sold overnight in anticipation of rising rates, but the yield gap between short-term and long-term bonds is narrowing as market prices risk this year’s rate hikes will drag on long-term growth.
The benchmark 10-year Treasury was stable in Asia and yields were just below 3% at 2.9805.
European yields are also rising as the European Central Bank is expected to raise rates by 25 basis points near July. The head of the Dutch central bank, Klaus Knott, said the big uprising should not be blown away overnight.
Commodities rallied with stocks this week as markets found reason to expect growth, but oil sank overnight and showed signs of slowing on Wednesday.
Brent crude futures rose 0.3% to 112.29 a barrel and US crude futures rose 0.8% to $ 113.35 a barrel.
The S&P global rating has downgraded growth forecasts for China, the United States and the eurozone.
“The world economy is facing an unusually large number of negative shocks,” said Paul F. Gruenwald, chief economist.
“Two developments have changed the macro picture,” he said, referring to Russia’s aggression in Ukraine, which has sent commodity prices and inflation, higher, wider and more stable than previously thought.
(Edited by Sam Holmes)