HONG KONG: Asian exchanges followed a Wall Street rally fueled by healthy economic and earnings data on Thursday as traders kept an eye on Chinese military drills around Taiwan.
Oil continued the previous day’s sell-off, which came on the back of new signs of weakening US demand. This followed the major manufacturers announcing a small increase in production.
The three major New York indices rose after a report on the crucial US services sector showed a surprise improvement, calming concerns about a possible recession in the world’s leading economy.
This came as several companies, including Electronic Arts, Starbucks and Moderna, posted solid earnings, extending a largely positive reporting season in the face of rising inflation and rising interest rates.
All eyes are now on the release of US employment data on Friday, which will provide the latest snapshot of the economy and could help guide the Federal Reserve (Fed) in its monetary policy debate.
Markets fluctuated this week after a number of Fed officials lined up to suggest some big rate hikes scheduled, and talking about cuts next year may be over the top.
This came after comments last week from Fed Chairman Jerome Powell indicated that US central bank policy makers may begin to ease their tightening campaign.
“After last week’s Fed meeting which opened up the possibility of a slower pace of rally, markets continue to ‘take risk’ despite the recent pushback from Fed officials,” said Stephen Innes of SPI Asset Management.
“But for equity investors, lower oil prices are a pleasure to watch as not only have US 10-year yields fallen, but falling oil prices have also pushed inflation expectations down, supporting that. thesis of the slowest pace of growth “.
“Preparing for war”
Both major oil contracts fell again – and stood at six-month lows – as a spike in U.S. inventories showed a drop in demand, while data showed Americans were driving less than in summer 2021, when trips were destroyed by Covid-19.
Crude has now given up all gains seen in the aftermath of the Russian invasion of Ukraine, although the 100,000-per-barrel increase in production by the Organization of Petroleum Exporting Countries and other major oil producers has been rejected by investors as too little to do on impact.
Mood in Asia was also much more stabilized following the shock of this week’s visit by US House Speaker Nancy Pelosi to Taiwan, which sparked outrage in China with warnings of harsh military and economic responses.
Beijing suspended a limited amount of imports and exports across the Strait and on Thursday began its largest-ever military drills around Taiwan which are expected to last for days.
Immediately thereafter, the Taiwan Ministry of Defense said it was “preparing for war without seeking war”.
Although Beijing’s show of strength is a cause for concern for traders, with the island effectively cut off, there was a sense of relief that China’s response didn’t go further.
Hong Kong led the gains, adding over 2%, while there was also progress in Shanghai, Tokyo, Seoul, Singapore, Manila, Jakarta and Wellington.
But Taipei has again fallen on concern that Chinese maneuvers would affect shipping routes and flights to Taiwan. Mumbai also collapsed and Sydney was flat.
London opened lower as investors awaited the Bank of England’s political decision, which many expect will translate into the largest increase since independence in 1997 as inflation is at a four-decade high. .
“Whatever they do, the [UK] the economy will slow down more than it already has, ”said CMC Markets analyst Michael Hewson.
“But inflation is becoming a much bigger threat in the long run, and given current trends, it’s unrealistic to expect it to drop to 2% long before 2024,” he added.
Paris and Frankfurt have both grown.
Pelosi’s journey managed to further strain already fraught China-US relations and market strategist Louis Navellier said, “It will be interesting if China takes revenge on … US companies or restricts trade in any way. “.