Asian stocks mostly rise on interest rates and inflationary hopes

TOKYO (AP) – Asian stocks were mostly higher on Wednesday on hopes that restraints on US interest rates could ease after new data showed signs of slowing inflation.

Benchmarks rose in early trade in Japan, South Korea and Australia while falling in China. Regional optimism was lifted by the easing of a COVID-19 lockdown in Shanghai. Such a development is a big plus for the region’s major growth engine.

“The good news is that China will eventually start to come out of lockdowns and there will be some form of stimulus from the authorities to restart communities and the economy. The light at the end of the tunnel is reasonably bright for China,” said Clifford Bennett, chief economist at ACY Securities.

But Bennett was quick to add, “Don’t expect a return to unbridled growth, however.”

Japan’s benchmark Nikkei 225 rose 1.4% to 26,703.18 in morning trade. Australia’s S&P/AS 200 rose 0.2% to 7,465.30. South Korea’s Kospi rose 0.7% to 2,686.14. Hong Kong’s Hang Seng slipped 0.2% to 21,276.10, while the Shanghai Composite shed 0.6% to 3,194.69.

Shionogi shares fell 15% in Tokyo trading after the Japanese pharmaceutical company reported animal testing of its experimental oral drug to treat COVID-19 showed it could endanger fetus development. Japanese media reported that the drug is not prescribed to pregnant women or those who may be pregnant.

Stocks ended slightly lower on Wall Street after investors weighed inflation data for March, though overall they remained at their highest levels in 40 years. Some analysts urged caution.

“The fact remains that price pressures are still at their highest levels in 40 years and the near-term prospects for aggressive policy tightening to cool demand remain unchanged. Comments from Fed Governor Lael Brainard, who was a well-known dovish voice in the Fed, continued to show a firm stance on cutting inflation overnight,” said Yeap Jun Rong, market strategist at IG Singapore.

The S&P 500 fell 0.3% after rising 1.3% earlier in the day. The pullback extends the benchmark index’s losing streak into a third day, reflecting investor concerns about the potential economic collateral damage as the US Federal Reserve becomes more aggressive in fighting high inflation.

The Dow Jones Industrial Average and Nasdaq Composite each fell 0.3% after shedding early gains.

Indexes initially rallied following the release of the report, which showed that inflation last month was again at its highest level in generations, largely due to rising gasoline prices. Nevertheless, the value was relatively close to what economists had expected.

Another faint bright spot was that inflation wasn’t as bad as economists had expected, discounting the cost of food and fuel. Known as “core inflation,” this is the measure that the Federal Reserve pays more attention to when setting monetary policy because it is less volatile. And core inflation slipped month-on-month to its lowest level since September.

“Hopefully this is as bad as it gets,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

“The risk is that a red-hot labor market will cool under the force of these higher food, fuel and financing costs. This is a time when economic resilience will be tested.”

The S&P 500 fell 15.08 points to 4,397.45. The Dow fell 87.72 points to 34,220.36 and the Nasdaq lost 40.38 points to 13,371.57.

Smaller company stocks fared better than the broader market. The Russell 2000 was up 6.61 points, or 0.3%, to 1,986.94.

Stocks have traded in the opposite direction of Treasury yields for the past few days, which have climbed to their highest levels since well before the pandemic. Yields soared as investors braced themselves for the Federal Reserve raising short-term interest rates faster than usual and aggressively reducing its holdings of bonds, the build-up of which was helping to keep longer-term interest rates low.

But Treasury yields fell Tuesday after the inflation report. The 10-year yield slipped to 2.72% from 2.77% late Monday. Before the release of the inflation report, it was 2.83% overnight. The 10-year yield still remains well above the 1.51% level at the start of the year.

Global markets remain uneasy about the war in Ukraine. In energy trading, benchmark US crude was up 43 cents at $101.03 a barrel. It rose 6.7% to trade at $100.60 on Tuesday, keeping pressure on high inflation. Brent crude, the international standard, rose 45 cents to $105.09.

Higher Federal Reserve interest rates would slow the economy, which would hopefully weigh down high inflation. Consumer prices in March were 8.5% higher than a year earlier, accelerating from February’s inflation rate of 7.9%, the highest since 1981.

To lower them, the Fed revealed in the minutes of its last meeting that it is willing to raise short-term rates by half a percentage point at some upcoming meetings, twice the usual amount, something it has not done since 2000.

The concern is that the Federal Reserve could raise interest rates so aggressively that it will force the economy into recession.

Higher interest rates are also putting downward pressure on all types of investments, with those seen as the most expensive being hit the hardest. That’s pushed technology and other high-growth stocks, which have been among the stock market’s recent winners, into the spotlight.

On Tuesday, technology and financials were among the top detractors from the S&P 500. Microsoft fell 1.1% and Wells Fargo fell 1.8%.

More swings could be in store for stocks as companies prepare to announce earnings for the first three months of the year. Delta Air Lines, JPMorgan Chase and other well-known companies start their earnings season on Wednesday.

In forex trading, the US dollar rose to 125.58 Japanese yen from 125.39 yen. The euro cost $1.0830, little changed from $1.0832.


AP business writers Stan Choe, Damian J. Troise and Alex Veiga contributed.

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