Asian Markets Hit a 7-Month High, Inflation Lifts Aussie Dollar

Asian equities rose to their highest levels in seven months on Wednesday, when some regional markets reopened after holidays.

The Australian dollar also hit multi-month highs as surging inflation made higher interest rates more likely.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2% to a seven-month high but traded below the day’s peak.

South Korean shares gained 1.3%, the Nikkei put on 0.4% and Singapore jumped 1.6%.

But trading volume was depressed as Chinese and Taiwan markets were still closed for the Lunar New Year holidays.

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European markets were headed for a weak opening, with Eurostoxx 50 futures down 0.3%, German DAX futures eased 0.2% lower and FTSE futures were steady.

E-mini futures for the S&P 500 shed 0.5% and Nasdaq futures lost 0.8%.

Globally, stocks have posted strong gains this year after a torrid 2022, based on expectations that inflation is close to peaking and the rise in US interest rates will taper off.

The dismantling of Covid controls in China and the re-opening of its borders have further boosted investor sentiment.

“The market continues to price for a dream scenario of inflation having peaked then coming down sharply, but not overshooting to the downside; only the very mildest of recessions by any historical standards,” Rabobank‘s global strategist Michael Every said in a report.

The MSCI’s Asia index has rallied 9% so far this year after slumping nearly 20% in 2022.

US stock indexes closed mixed on Tuesday after companies reported better than expected profits, while warning of a difficult year ahead. Data showed US business activity contracted for a troubling seventh straight month in January.

Shares in Microsoft gave up most of their 4% gains posted in after-hours trade. The tech titan’s better-than-expected results showed some strength in the face of a weak economy but weak revenue growth signalled tougher times for the sector.

MSCI’s all-country world index eked out a fresh five-month closing high on Tuesday.

Stronger-than-expected economic data in Europe eased market worries of a sharp recession there, but interest rates are still seen creeping higher despite declining energy prices reducing inflationary pressure.

The euro edged towards a nine-month peak of $1.0927 against the dollar, as euro bulls were encouraged by a rosier growth outlook for the euro zone against signs of a recession looming in the United States.

Aussie and Indian markets slip

Australian equity markets fell 0.3% on Wednesday after a shock surge in inflation to a 33-year high in the last quarter of 2022 reinforced the case for the Reserve Bank of Australia to keep raising interest rates.

Investors sharply narrowed the odds on RBA lifting its cash rate by a quarter point to 3.35% when it meets on February 7. Previously, some analysts had thought there was a chance that the RBA might pause its tightening campaign, but the pace of inflation put paid to that.

The New Zealand dollar slid after New Zealand reported annual inflation of 7.2% in the fourth quarter, below a central bank forecast of 7.5%.

Meanwhile, Indian stocks were down in volatile trading, ahead of the monthly expiry of derivatives and the federal budget, while Adani Ports plunged 6% after a damning report by Hindenburg Research.

The Sensex fell by 774 points, while the Nifty was down about 1%, ending near 17,900 at the close.

“We are seeing a lot of volatility, especially in the light of the Adani report, and with monthly expiry for futures and options today and before the budget,” Samrat Dasgupta, chief executive officer of Esquire Capital Investment Advisors, was quoted as saying by the Economic Times.

Nifty’s volatility index climbed as much as 8.5% to 14.815 after hovering around the 14 mark for over a month.

In other news, US crude oil prices were stable at $80.3 a barrel after falling in the previous session as preliminary data indicated a bigger than expected rise in US oil inventories.

Gold prices dipped to $1,927 per ounce, off a nine-month peak touched in the previous session.