Why Are Asian Equities Rising Amid Rate Raise Concerns?

European markets appeared to be heading for a stronger start; Pan-European futures (STXec1) were up 0.93 percent and FTSE 100 futures were up 0.88 percent.

Overnight, Wall Street was battered by dismal housing and manufacturing statistics as central bankers in the United States approved two more major interest rate hikes as early as June and July to combat 40-year-high inflation. The Nasdaq Composite Index (IXIC) fell 2.35 percent, while the S&P 500 Index (SPX) fell 0.81 percent. New home sales in the United States plunged 16.6% month over month in April; the greatest drop in nine years, driving US Treasury rates to one-month lows as investors sought safety once more. The yield on the benchmark 10-year note (US10Y=RR) was 2.766 percent, while the 2-year note (US2Y=RR) yield was 2.522 percent.

Fed’s Decision Impacts Growth 

Headlong rate rises may cause “substantial economic upheaval,” according to Atlanta Fed President Raphael Bostic, a small group of Fed members who favour slowing the pace of rate hikes later this year if inflation cools. Investors in Asia are also concerned about the impact of frequent Chinese COVID-19 lockdowns on growth; they threaten to undo recent stimulus measures in the world’s second-largest economy. In a note, Stephen Innes of SPI Asset Management said, “In Asia, investor discussion focused on whether China’s easing efforts are adequate to counter negative pressures.”

“In an economy where economic activity has slowed dramatically, fiscal multipliers will be negligible. Moving quickly past mobility limitations is a prerequisite for an Asia-led economic revival, but it is not a certainty.” Gold prices fell 0.19 percent to $1,862.27 per ounce on Tuesday after reaching their highest level in two weeks the day before. Oil prices increased by more than 1% on the possibility of constrained supply. Crude futures in the United States (CL1!) increased to $111.05 per barrel, while Brent (BRN1!) increased to $114.86.