Asian markets mostly rose Thursday after Wall Street surged on positive news about interest rates and the Chinese economy. Investors welcomed signals from Federal Reserve Chair Jerome Powell that the U.S. central bank may moderate rate hikes sooner than expected. Upbeat comments from China’s securities regulator about market stability also lifted sentiment.
Wall Street Rebounds on Rate Hopes
U.S. stocks staged a broad rally Wednesday, recovering some losses after the market’s worst stretch since 2020. The gains came as Federal Reserve Chair Jerome Powell said the central bank could moderate interest rate hikes as soon as December.1
The S&P 500 jumped 2%, snapping a 4-day losing streak. The tech-heavy Nasdaq soared 2.9% while the Dow Jones Industrial Average climbed 1.4%. Stocks sensitive to rates drove the gains after Powell signaled potential moderation in the Fed’s aggressive rate hikes aimed at taming inflation.
US Index Performance 2/7/2024
The gains will come as a relief to investors after September’s hot inflation reading dashed hopes the Fed would pivot from its aggressive rate hikes, leading to the market’s worst monthly returns since March 2020. Powell’s latest remarks indicate the Fed may slow its pace of hikes starting as early as December.
China Stocks Rally on State Support
Asian markets were mostly higher Thursday after Wall Street’s bounce back, with Chinese shares extending strong gains.2
Stocks in mainland China and Hong Kong surged after China’s securities regulator pledged support for the battered real estate sector and promised stability in capital markets. The state fund also said it would buy more stocks to stabilize markets.
Hong Kong’s Hang Seng jumped 3.9% to a 5-month high while the Shanghai Composite rallied 1.2%. Japanese markets were closed for a holiday after the Nikkei 225 sank 1.1% Wednesday.
Asian Index Performance 2/7/2024
With Wall Street recovering and Chinese authorities rolling out supportive policies, markets may be shaking off some of the negativity that has prevailed in recent months.
Nonfarm Payrolls, Rates in Focus
While the positive updates on rates and China may lift investor sentiment in the near term, worries still linger about the health of the global economy. All eyes are now on the U.S. nonfarm payrolls report Friday, which could provide clues on whether the Fed will downshift its rate hikes.3
Economists expect the report to show a moderation in job growth, reflecting cracks in economic demand. Such a slowdown could give the Fed leeway to slow its pace of rate hikes to avoid tipping the economy into recession.
Treasury yields dipped Wednesday after Powell signaled potential moderation in hikes. Another tame inflation reading or soft economic data could cement expectations of a Fed pullback. But concerns remain that inflation may rebound or that rapid hikes could trigger an economic contraction.
Outlook Cautiously Upbeat But Risks Remain
The positive turn in markets reflects investor hopes that the Fed may be able to orchestrate a soft landing for the economy. Moderating inflation could also take pressure off strained budgets for consumers and businesses.
However, risks still loom large over the global economy in 2023. Aggressive Fed tightening could still tip key economies into recession while the fallout in China from rigid zero-COVID policies raises uncertainties about global growth.
For now, investors seem cautiously optimistic that the worst may be over for markets after central banks across the globe take their foot off the brakes. But any return of high inflation or indication of demand destruction could easily shatter hopes for a soft landing.
After the turmoil of 2022, market stability remains fragile with many potential pitfalls ahead. While the recent updates are positive, the path forward is unlikely to be smooth and further volatility seems inevitable.
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