Written by Tom Westbrook
SINGAPORE (Reuters) – Asian stock markets regained gains for a fourth straight session on Wednesday, but the latest rally lost momentum as nagging doubts about inflation and the impact on interest rates overshadowed some good news about the global growth outlook.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5%, the longest winning streak since February. It rose 0.6% and miners led Australian shares around 0.9%.
The gains came on the heels of a rally in Wall Street and a fall in the dollar as investors pushed concerns about inflation and recession to the back of their minds.
But analysts doubted whether it could last, and the US currency and futures in Asia were stable. It fell 0.2%, it fell 0.4% while futures were flat and European futures were up 0.2%.
“After the plunge last week, stocks could see an additional bounce in the near term,” said Shane Oliver, chief economist and head of investment strategy at Australia’s AMP (OTC:) Capital.
“However, risks related to inflation, monetary tightening, the war in Ukraine and Chinese growth remain high and continue to point to further declines in stock markets,” he said.
The dollar held steady after the overnight kick boosted by the Australian wage growth that missed expectations, pushing the dollar to briefly drop below $0.70.
The Dollar settled against the Euro at $1.0534 and halted a strong GBP rebound at $1.2480 that followed Tuesday’s strong employment data.
Inflation figures in Britain and Canada later on Wednesday may change interest rate expectations and move currencies. It hovered at 103.370.
“It is still too early to announce a long-term peak for the dollar and retracements should be shallow,” said Westpac analysts. “But some two-way consolidation between 102-104 is likely in the near term,” they added, referring to the dollar index.
Positive data helped the mood in the short term, with the US retail sales meeting expected a strong increase in April and industrial production exceeding expectations.
Data on Wednesday showed the Japanese economy contracted less than expected in the first quarter.
Shanghai is also nearing the end of its prolonged lockdown and China’s vice premier made soothing comments to tech executives in the latest sign of easing pressure.
However, any good news was offset by a reminder from Federal Reserve Chair Jerome Powell that getting inflation under control will require raising interest rates and possibly some pain.
Investors priced US interest rate increases by 50 basis points in June and July and see the benchmark Fed funds rate rise by 3% by early next year.
Treasuries were sold in all maturities on Tuesday in anticipation of higher interest rates, but the yield gap between short- and long-term bonds is narrowing as markets price the risk that increases this year will weigh on long-term growth.
The benchmark 10-year Treasuries were flat in Asia and the yield remained just under 3% at 2.9805%.
European yields are also rising as the European Central Bank says a 50bp rate hike should not be ruled out.
Commodities rose with stocks this week as markets found reasons to comment on growth hopes, but oil fell on Tuesday and there were signs of pullback momentum on Wednesday.
Futures contracts rose 0.7 percent to $112.73 a barrel, and futures contracts rose 1.2 percent to $113.83 a barrel.
S&P Global Ratings (NYSE:) lowered growth forecasts for China, the United States and the eurozone.
“The global economy continues to face an unusually high number of negative shocks,” said Chief Economist Paul F. Groenewald.
“Two developments that changed the overall picture,” he said, were the Russian invasion of Ukraine that drove up commodity prices and inflation, which turned out to be higher, broader and steadier than initially thought.
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