Stocks Jump on China; Bonds Flash Post-Fed Concern: Markets Wrap
- Asian shares rally as tech spurs Hong Kong, yen bolsters Japan
- Powell said U.S. can handle Fed campaign to restrain inflation
Stocks jumped Thursday, with Chinese technology shares soaring again as traders digested the Federal Reserve’s view that the U.S. economy is strong enough to weather the campaign against high inflation now underway.
Asia-Pacific equities rose nearly 3% as the tech gains propelled Hong Kong and yen weakness spurred export-reliant Japan. S&P 500 and Nasdaq 100 futures fluctuated after the broad U.S. market’s best two-day advance since 2020.
China’s effort to stabilize markets, unveiled a day ago, and possible progress on cease-fire talks between Russia and Ukraine are soothing sentiment.
The Fed raised rates by a quarter percentage point and signaled hikes at all six remaining meetings in 2022. Chair Jerome Powell said the U.S. economy is “very strong” and can handle monetary tightening.
Treasuries advanced, while a portion of the bond curve — the gap between five- and 10-year yields — inverted for the first time since March 2020. For some, the latter highlights a growing risk that the Fed’s efforts to rein in inflation could trigger an economic downturn.
The dollar was steady and the yen hovered near a six-year low. Oil snapped a three-day drop but remains down more than 10% for the week.
The key question for markets remains whether the U.S. central bank can tackle the fastest inflation in four decades without pushing the economy into recession. The commodity shock from Russia’s war in Ukraine is aggravating price pressures and economic risks.
The Fed wants “financial conditions to tighten,” Alan Ruskin, chief international strategist at Deutsche Bank AG, said on Bloomberg Television. “The issue there is, can you soft-land this thing? Historically, when the Fed tightens, you do get some hard landing somewhere.”
The Fed said it would begin allowing its $8.9 trillion balance sheet to shrink at a “coming meeting,” without elaborating. The U.S. central bank is among a number from Brazil to the U.K. that are raising borrowing costs.
“It’s possible we’re going to see a yield curve inversion,” Meera Pandit, global market strategist at JPMorgan Asset Management, said on Bloomberg Television. That doesn’t necessarily mean a U.S. recession, since bond-market signals are being shaped by an unusual combination of Fed tapering, rate hikes and balance-sheet reduction over a relatively short period, she added.
After the latest round of peace talks, a Russian spokesman said a neutral Ukraine with its own army is a possible compromise, while Kyiv said it needs security guarantees. President Joe Biden said the U.S. would send Ukraine drones and thousands of anti-aircraft and anti-tank missiles.