Asian Stocks Up, Powell Hints at Interest Rate Hikes

© Reuters.

By Gina Lee

Investing.com – Asia Pacific stocks were mostly up on Wednesday morning while bonds fell after U.S. Federal Reserve Chair Jerome Powell signaled an interest rate hike liftoff, vigilance on inflation, and economic resilience.

China’s Shanghai Composite was up 0.27% by 9:24 PM ET (2:24 AM GMT) while the Shenzhen Component fell 0.58%. The country released its Caixin services purchasing managers index (PMI) earlier in the day.

Hong Kong’s Hang Seng Index gained 0.57%.

Japan’s Nikkei 225 rose 0.73%, with the country’s services PMI at 44.2 for February.

South Korea’s KOSPI jumped 1.37% and in Australia, the ASX 200 rose 0.69%.

The safe-have demand sparked by Russia’s invasion of Ukraine on Feb. 24 has eased somewhat. Bonds in Australia and New Zealand fell, while U.S. Treasuries held much of their sharp losses from Wednesday. However, the benchmark U.S. 10-year yield remains below the 2% levels seen before the invasion.

Powell backed a quarter-point Fed rate hike later in the month in his testimony before Congress. However, he added that the central bank could take tougher action if inflation levels do not come down.

The Fed chair managed to “appease risk-markets by ruling out a 50 basis-points hike in March, while simultaneously promising inflation vigilance at following meetings,” Citigroup Inc. strategists William O’Donnell and Edward Acton said in a note.

The Fed is one of several key central banks looking to hike interest rates while monitoring the conflict in Ukraine and the potential economic consequences. The Bank of Canada hiked its interest rate to 0.5% on Wednesday, while the European Central Bank will also release the minutes from its February 2022 meeting later in the day.

St. Louis Fed President James Bullard called for a “rapid withdrawal of policy accommodation.” His colleague, Chicago Fed Bank President Charles Evans said monetary policy is currently “wrong-footed” and needs to be upwardly adjusted toward neutrality.

“It’s really time for investors to be prepared for more volatility, especially in the bond markets” as the Fed has yet to commence with balance-sheet reduction, Quadratic Capital Management LLC chief investment officer Nancy Davis told Bloomberg.

Russia’s isolation on the international market continues. MSCI Inc. is eliminating Russian equities from its emerging-markets index, and Russia will be deleted from all FTSE Russell equity indexes. Fitch Ratings slashed the country’s credit rating by six levels to junk, saying that the severity of international sanctions could undermine Russia’s capability and willingness to service debt.

On the data front, U.S. factory orders and durable goods data will be released later in the day. The latest U.S. jobs report, including non-farm payrolls, will follow a day later.