15th March 2023 – (Hong Kong) Asian equities made significant gains on Wednesday, buoyed by a rally on Wall Street and news that U.S. inflation figures were not as high as expected. This eased concerns that the Federal Reserve may implement large interest rate hikes in response to surging inflation, with investors now anticipating a smaller rate hike at the upcoming Fed meeting. The MSCI Asia-Pacific index rose by 1.44%, recovering from a 1.7% slide on Tuesday following the collapse of Silicon Valley Bank, which had prompted heavy selling. The Hang Seng index in Hong Kong increased by 1.4%, while China’s shares rose by 0.46%. The Japanese Nikkei was largely flat, while Australia’s S&P/ASX 200 index increased by 0.33%.
The US banking sector stabilising, following the recent collapse of Silicon Valley Bank, has helped to restore confidence among investors. They now believe that depositors will not suffer losses. Furthermore, February’s U.S. inflation report showed a year-on-year gain of 6%, in line with analysts’ expectations. This allayed fears of stronger-than-expected inflation and larger interest rate hikes. Last week, the markets had been anticipating large Fed hikes, but expectations have now been adjusted, with investors pricing in an 80% chance of a 25 basis point hike at the upcoming Fed meeting.
Robert Carnell, the Regional Head of Research, Asia Pacific at ING, believes that the current situation is driven by a relief rally rather than inflation concerns. In addition to the above, China’s industrial output for the first two months of the year was up by 2.4% from the same period in 2022. However, this fell short of analysts’ forecasts of a 2.6% rise.
U.S. Treasury yields extended their gains during the Asian trading hours, having declined sharply at the start of the week. The yield on 10-year Treasury notes increased by 3.8 basis points to 3.674%. The two-year U.S. Treasury yield, which usually moves in line with interest rate expectations, was up 6.9 basis points at 4.294%, but far from last week’s peak of 5.084%.
In the currency market, the US dollar held steady, with the dollar index at 103.64. The euro remained unchanged at US$1.0732, while the Japanese yen weakened by 0.08% to 134.30 per dollar. Sterling was trading at US$1.2157, down by 0.01% on the day. In the commodities market, US crude rose by 1.07% to US$72.09 per barrel, while Brent was at US$78.16, up 0.92% on the day. Spot gold prices were also up by 0.1%, reaching US$1,904.11 an ounce.