Asian markets rebound on positive US inflation data and Wall Street relief rally

Singapore — Asian equities rose sharply on Wednesday, tracking a relief rally on Wall Street and as US inflation data delivered no nasty surprises, reinforcing hopes the Federal Reserve will go for a smaller rate hike when it meets next week.

Investors piled back into stocks in US markets overnight as fears about contagion in the banking sector after the collapse of Silicon Valley Bank (SVB) last week eased.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 1.44% higher, having slid 1.7% on Tuesday after SVB’s collapse triggered heavy selling by investors in the last few trading sessions.

Australia’s S&P/ASX 200 index rose 0.33% in early trading, while Japan’s Nikkei was mostly flat.

Chinese shares were 0.46% higher, while Hong Kong’s Hang Seng index rose 1.4%.

Data on Wednesday showed China’s industrial output in the first two months of 2023 rose 2.4% from the year earlier, accelerating from a 1.3% annual rise seen in December. The data slightly missed forecasts for a 2.6% rise in a Reuters poll of analysts.

“It’s clearly dominated by a relief rally rather than any inflation angst,” said Robert Carnell, regional head of research, Asia Pacific at ING.

“I suppose what we’ve got is the banking sector in the US returning to stability, with depositors being given the fairly clear signal that they’re not going to lose out.”

Investors were also relieved after February’s US inflation report on Tuesday showed consumer prices rising by 0.4%, with a year-on-year gain of 6% — in line with analyst expectations, as there were worries that stronger-than-expected data might lead the Fed to go for jumbo-sized hikes to battle inflation.

As recently as last week, markets were braced for the return of large Fed hikes, but the swift collapse of SVB has changed those expectations, with the market pricing in an 80% chance of a 25-basis-point (bps) hike next week.

“It does feel like the 50bps move for this month’s meeting that was speculated about especially after Powell’s commentary to the Senate Banking Committee. Nobody’s expecting that any more,” said Carnell.

US treasury yields extended gains into Asian hours after sharp declines at the start of the week. The yield on 10-year treasury notes was up 3.8bps to 3.674%.

The two-year US treasury yield, which typically moves in step with interest rate expectations, was up 6.9bps at 4.294%, but far off last week’s peak of 5.084%.

In the currency market, the greenback held steady, with the dollar index, which measures the US currency against six rivals, at 103.64, and the euro unchanged at $1.0732.

The Japanese yen weakened 0.08% to 134.30 per dollar, while sterling was last trading at $1.2157, down 0.01% on the day.

US crude rose 1.07% to $72.09 a barrel and Brent was at $78.16, up 0.92% on the day.

Gold prices were on edge, with spot gold adding 0.1% to $1,904.11 an ounce.