Asian Stocks Up, but Japanese GDP Disappoints

017, May 2022

( ) Asia Pacific stocks were mostly up on Wednesday morning, extending a rally in step with U.S. counterparts. However, Treasuries held most of a slide as investors continue to digest hawkish comments from U.S. Federal Reserve Chairman Jerome Powell.

Japan’s Nikkei 225 rose 0.71% by 10:39 PM ET (2:39 AM GMT). Data released earlier in the day showed that the GDP contracted 1% year-on-year and 0.2% quarter-on-quarter in the first quarter of 2022.

South Korea’s KOSPI inched up 0.10%.

In Australia, the ASX 200 rose
0.96%, with the wage price index growing 2.4% year-on-year and 0.7% quarter-on-quarter.

Hong Kong’s Hang Seng Index fell 0.75%. China’s Shanghai Composite fell 0.69% while the Shenzhen Component inched up 0.02%.

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Despite the disappointing GDP data, Japanese shares rose over 1%. This helped an Asian stock index climb for a fourth consecutive day, the longest streak since February 2022. U.S. futures also edged up after the S&P 500 and Nasdaq 100 added at least 2% thanks to the previous session’s risk rebound.

A gauge of U.S.-listed Chinese shares soared more than 5% on Tuesday after Vice Premier Liu He gave a public show of support for digital-platform companies after a symposium with the heads of some of China’s largest private firms.

U.S. Treasury yields remained higher, while Australian bonds fell after Powell said the Fed “won’t hesitate” to tighten policy beyond neutral to curb inflation. He added that the Fed will hike interest rates until there is “clear and convincing” evidence that inflation is in retreat.

The comments, made at a Wall Street Journal live event, were some of Powell’s most hawkish to date.

Investors now await comments from Philadelphia Fed President Patrick Harker, and a G-7 finance ministers and central bankers meeting, later in the day.

“This is one of the most challenging markets I have been in in my career,” MFS Investment Management fixed income portfolio manager Henry Peabody told Bloomberg.

“I suspect at a certain point of time we’re going to have the liquidity of the markets challenged. They really haven’t been thus far.”

Strong U.S. retail sales and factory data did brighten investor sentiment, but concerns that this respite is a so-called bear-market bounce continue as monetary settings tighten, the war in Ukraine continues and China grapples with COVID-19.

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“We’ll have this kind of volatility as people jump in and look at opportunities to buy as markets decline,”
Cope Corrales director of investments Shana Sissel told Bloomberg, adding that the Fed is going to struggle to achieve a soft economic landing, she added.

The U.S. is also set to fully block Russia’s ability to pay U.S. bondholders after a deadline expires in the following week, which could bring Russia closer to the brink of default.

Elsewhere, the eurozone and U.K. consumer price indexes are due later in the day, with China’s loan prime rates following on Friday.