By Gina Lee
Investing.com – Asia Pacific stocks were up on Wednesday morning, with the U.S. Federal Reserve’s tougher stance on inflation driving gains on Wall Street but deepening a Treasury selloff.
Japan’s Nikkei 225 jumped 2.94% by 11:13 PM ET (3:13 AM GMT) and South Korea’s KOSPI gained 0.61%.
In Australia, the ASX 200 was up 0.46%.
Hong Kong’s Hang Seng Index rose 1.9%.
China’s Shanghai Composite was up 0.49% and the Shenzhen Component gained 0.67%.
U.S. contracts fluctuated, but the S&P 500 was up for the fifth session in six. However, U.S. Treasuries held its losses from Monday, when Fed Chairman Jerome Powell signaled that a half-point interest-rate hike could be possible at the central bank’s next meeting. Short-term U.S. government bonds fell toward their worst quarterly performance in almost four decades, while Australian and New Zealand debt also weakened.
Central banks are moving towards tightening their monetary policy in response to rising inflation, which has risen to 40-year highs as the war on Ukraine led to rising commodity prices.
Even the Fed’s more dovish policymakers agree with Powell’s statement that interest rates should be hiked at a quicker pace, with the economy strong enough to weather higher borrowing costs. Equity markets seem to be responding to that message, with some investors leaning into stocks as an inflation hedge.
“We are positive for equities for this year,” Principal Global Investors chief strategist Seema Shah told Bloomberg. While the market may be more challenged in 2023 and recession risks are rising, “we still think the U.S. economy is pretty good fundamentally,” she said.
“Faster hikes are clearly going to help inflation come down,” which may reduce the need for a longer tightening campaign, she added.
The Fed is expected to hike interest rates six more times within 2022, after raising it to 0.5% in its latest policy decision handed down during the previous week. San Francisco Fed President Mary Daly said on Tuesday that it was time to remove policy accommodation, while St. Louis Fed President James Bullard and Cleveland’s Loretta Mester called for faster hikes.
Powell, European Central Bank President Christine Lagarde, and Bank of England Governor Andrew Bailey will also speak at the BIS innovation summit later in the day.
Concerns about economic growth are mounting, as the war in Ukraine shows little sign of resolution. U.S. President Joe Biden and allies will meet in Brussels, where they are expected to announce new sanctions against Russia over its invasion of Ukraine on Feb. 24. They are also expected to introduce fresh measures designed to keep Russia from sidestepping existing economic penalties.
Investors will also monitor commodity markets, with the U.S. and U.K. reaching a deal to ease tariffs on British steel and aluminum that could ease some inflationary pressures.
U.K. Chancellor Rishi Sunak will deliver his “spring statement” on the budget later in the day, with U.S. durable goods orders data due a day later.