Stocks rally as markets bet on more gradual rate hikes

Passers-by wearing protective face masks walk past an electronic board showing Japan’s average Nikkei share amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan July 14, 2022. REUTERS/ Issei Kato

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SINGAPORE, July 29 (Reuters) – Asian stocks took inspiration from a late rally on Wall Street on Friday as markets focused on a possible slowing in the pace of rate hikes rather than a U.S. recession after data showed that its economy contracted for a second. right quarter.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rose 0.41%. Japan’s Nikkei stock average (.N225) opened 0.36%, while the Seoul index (.KS11) and Australia index (.AXJO) opened 0.75% and 0 respectively, 76%.

Economists wonder if the world’s largest economy is already in recession or on the verge of it, as it battles its highest inflation in four decades and gross domestic product shrinks – at an annualized rate by 0.9% in the last quarter, after a contraction of 1.6% in the quarter before that. Read more

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The Federal Reserve this week raised another aggressive 75 basis points in interest rates, its third this year.

Meanwhile, China, still plagued by COVID-19 outbreaks and lockdowns, failed to mention its full-year GDP growth target after a high-level Communist Party meeting and said that rather, it would strive to achieve the best possible results for the economy. This year. Read more

U.S. stocks, however, rallied this week as comments from Federal Reserve Chairman Jerome Powell suggested rate hikes would start to slow and eventually turn into rate cuts in 2023. Amazon (AMZN.O) and Apple (AAPL.O) rose 12% and 3% each after hours after the tech giants reported earnings that beat expectations.

The Dow Jones Industrial Average (.DJI) rose 332.04 points, or 1.03%, to 32,529.63, the S&P 500 (.SPX) gained 48.82 points, or 1.21%, to 4,072.43 and the Nasdaq Composite (.IXIC) added 130.17 points, or 1.08%, to 12,162.59.

But analysts warned the rally could be short-lived.

“Financial markets took the combination of the (Fed) announcement and negative US GDP print as confirmation that policymakers will ease their aggressive monetary tightening cycle before too long. Our sentiment, however, is that such hopes are premature and that some of this year’s dominant trends, notably the rising US dollar, will reassert themselves before too long,” Capital Economics said in a note.

The dollar remained near a six-week low against the yen for similar reasons, trading at 134.39 yen, rebounding 0.13% after an overnight plunge of 1.74%, the highest since March. 2020. It hit a low of 134.2 on Thursday, the lowest since June 17. read more

US Treasuries slid on weak economic data, with the yield on the benchmark 10-year Treasury slipping to 2.6759%. The yield on the two-year note, which generally moves in line with interest rate expectations, was 2.8703%.

“There’s this seesaw right now with inflation and growth issues,” said Tom Nash, bond portfolio manager at UBS Asset Management in Sydney, with surprisingly weak US growth numbers emphasizing this. last.

“When it comes to inflation issues yields go up, when it comes to growth issues yields go down. What we’re seeing right now is the market putting less emphasis on focus on inflation and more on growth.”

Brent crude futures rose 0.8% to $108 a barrel and U.S. West Texas Intermediate (WTI) crude rose 1.08% to $97.46.

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Additional reporting by Tom Westbrook; edited by Richard Pullin

Our standards: The Thomson Reuters Trust Principles.

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