Asian markets extend rally on hopes US will avoid recession

HONG KONG (AFP): Asian markets rose again Friday as fears about a possible recession in the US economy were soothed by data showing it grew more than expected in 2022, adding to the broadly upbeat tone across trading floors this year.

Investors tracked a rally on Wall Street fuelled by the figures, while they are now awaiting the release of closely watched inflation data later in the day and then the Federal Reserve’s latest policy decision next week.

There is growing hope that the central bank will lift interest rates by just 25 basis points, having slowed its pace of increases last month following four straight bumper hikes aimed at bringing inflation down from multi-decade highs.

There was also a suggestion from the Bank of Canada that it could hold fire at its next gathering, following a programme of tightening.

“The BoC’s explicit pause signal has many thinking whether other central banks will do likewise — note BoC was one of the first to start the initial hiking cycle,” said National Australia Bank’s Tapas Strickland.

Central banks spent last year ramping up borrowing costs to battle soaring prices and any sign of strength in the economy was taken as a bad sign that policymakers would continue to tighten policy sharply, threatening companies’ profits.

Concern towards the end of the year focused on a possible global recession caused by the restrictive policies, with several observers warning that top economies were likely to suffer a so-called hard landing.

Thursday’s US growth figures showed a slowdown in 2022 from the previous year but a better-than-expected performance, which was described as a “Goldilocks scenario” — where the figures are neither too good nor too bad.

Still, Strickland warned the labour market, which has remained tight during the pandemic recovery, could be showing signs of softening.

He added: “Announced layoffs do suggest (initial jobless claims) should start ticking higher and continuing claims did rise more than expected.

“Overnight there were more announced layoffs happening from IBM, SAP and Dow, totalling more than 10,000. This spread of layoffs outside of tech is potentially important given firms had been holding onto workers after struggling to hire and retain them during the pandemic.”

Investors are also keeping a nervous eye on earnings season, which has thrown up some disappointing figures and downbeat forecasts.

The latest was chip titan Intel, which predicted a surprise loss in the current period, while its sales range was well off forecasts by billions of dollars. Its worst possible scenario could see its lowest revenue since 2010.

Still, Asian traders remain well supported by China’s reopening narrative, with expectations the world’s second-biggest economy will enjoy a strong recovery this year after three years of damaging zero-Covid policies that essentially cut the country off.

Hong Kong continued its new year rally, while Tokyo, Sydney, Seoul, Singapore, Bangkok, Wellington, Manila and Jakarta were also on the rise.

London opened with gains, though Paris and Frankfurt dipped.

But Mumbai sank around 1.7 percent, dragged by a sell-off in shares of the business empire of Asia’s richest man Gautam Adani after his conglomerate was accused of committing “brazen” corporate fraud.

The flagship Adani Enterprises plunged 15 percent in the afternoon, triggering a trading halt, while subsidiary Adani Total Gas also halted after it tanked 20 percent.
Shanghai was closed for the Lunar New Year break, with analysts predicting a strong performance when investors return to their desks next week.

Optimism over demand from a rebounding China was also able to provide support to oil prices and offset any lingering worries about the global economic outlook. Both main contracts rose again Friday.

“The theme for oil this year is China plus supply tightness from Russia, against a recessionary backdrop,” Sean Lim, of RHB Investment Bank, said. “We expect Brent to average $85 in the first quarter.”