Asian stocks march upwards as fears ease over Ukraine and China

Tokyo — Hong Kong led strong gains in Asian stock markets on Thursday, buoyed by signs of progress in peace talks between Russia and Ukraine and by expectations of more support for China’s wobbly economy.

Pan-European stock futures also looked set for a firmer open, pointing 0.21% higher. US stock futures indicated a slightly lower restart, but followed a 2.2% surge for the S&P 500 overnight.

Investors took in stride the long expected start of monetary tightening in the US.

Treasury yields eased a little after spiking to nearly three-year highs overnight — with shorter-end yields rising more to flatten the curve — after the Fed on Wednesday raised the policy rate for the first time since 2018.

The Fed increased rates by a quarter point, as expected, and telegraphed equivalent hikes at every meeting for the remainder of this year to aggressively curb inflation.

The dollar, though, remained on the back foot and oil stabilised well south of recent multiyear highs amid signs of material progress in talks between Russia and Ukraine to end a three-week-old invasion that Moscow says is a “special military operation” to demilitarise its neighbour.

Meanwhile, investors’ concerns about a sharp slowdown in China, which is battling a spreading Covid-19 outbreak with ultra-restrictive measures, were assuaged after vice-premier Liu He on Wednesday signalled more stimulus to support the economy and markets, with additional supportive comments coming from the country’s central bank, the securities regulator and elsewhere.

Hong Kong’s Hang Seng jumped more than 5%, adding to Wednesday’s 9% surge. Beaten-down sectors including tech and real estate soared, with Country Garden Services Holdings and Country Garden Holdings climbing about 28% and 26%, respectively. Alibaba Group Holdings leapt 9%.

Chinese blue chips gained 2.3%, extending the previous day’s 4.3% rebound.

Japan also saw outsized gains, with the Nikkei vaulting 3.5% and touching a two-week peak.

An MSCI index of regional shares rallied 3%.

Wall Street stayed strong despite the Fed’s more hawkish tilt because chair Jerome Powell “emphasised that the economy was strong enough to withstand hikes, saying he wasn’t concerned by the possibility of a recession”, National Australia Bank economist Taylor Nugent wrote in a client note.

Glimmers of progress in Russia-Ukraine peace talks had already boosted market sentiment, along with the positive comments from Chinese officials, Nugent said.

The two-year US treasury yield hit 2.002% after the Fed decision before easing to 1.9159% in Tokyo trading, while the 10-year yield jumped to 2.2460% and then eased to 2.1403%. Both overnight levels were the highest since May 2019.

The safe-haven greenback remained out of favour, though, amid the improvement in market sentiment, and while the outcome of the Fed meeting was on the hawkish side, analysts saw it as within the bounds of market expectations.

The dollar index, which tracks the currency against six major peers, was slightly weaker at 98.476 after declining 0.47% on Wednesday.

Where the dollar showed some strength was against Japan’s currency, standing at ¥118.82, not too far from the more than six-year high of 119.13 reached overnight amid a widening monetary policy gap. The Bank of Japan is widely seen keeping stimulus ultra-easy on Friday as the economy continues to sputter.

The euro eased slightly to $1.1029, but holding on to most of Wednesday’s 0.74% bounce. Sterling stayed firm, trading at $1.3156 after rallying 0.77% in the previous session. The Bank of England announces policy later on Thursday and is expected to hike rates by an additional quarter point.

Crude oil rebounded on Thursday after the International Energy Agency (IEA) said a decline in oil demand due to higher prices would not offset the massive supply shortfall caused by a shut-in of Russian oil supplies.

Brent crude futures were up about $1.76, or 1.8%, to $98.02 a barrel, compared with a recent peak of $129.30. US West Texas Intermediate (WTI) crude was up $1.66, or 1.75%, to $95.04 a barrel, versus a top earlier in March of $124.58.

Reuters