Asian stocks rise on Fed rate hopes despite China concerns

Asian stocks rose on Thursday, although optimism that the US Federal Reserve is holding back on aggressive rate hikes was offset by some uncertainty over China’s coronavirus restrictions.

Trading in Asia was relatively muted before US markets closed for Thanksgiving. Benchmarks rose in Japan, Australia and South Korea. They rose in Hong Kong but fell in Shanghai. Oil prices fell.

“A headwind for Asian markets is the COVID situation in China, where investors appear to be avoiding local assets and commodities as the country sees near record numbers of COVID cases. Sweeping restrictions will continue to weigh on risk sentiment and macroeconomic fundamentals, putting pressure on the outlook for cyclical equities and commodities,” ActivTrades’ Anderson Alves said in a comment.

Japan’s benchmark Nikkei 225 rose 1.0% to close at 28,383.09. Australia’s S&P/ASX 200 rose 0.1% to 7,241.80. South Korea’s Kospi was up almost 1.0% to 2,441.33. Hong Kong’s Hang Seng rose 0.6% to 17,626.00, while the Shanghai Composite fell 0.3% to 3,089.31.

Stocks ended sharply higher on Wall Street after minutes after the Federal Reserve’s latest monetary policy meeting showed central bank officials agreed smaller rate hikes were likely “soon” to be appropriate.

This suggests that policymakers are seeing signs that inflation is cooling as the economy slows on the back of more expensive borrowing.

The S&P 500 was up 0.6% to 4,027.26, while the Dow Jones Industrial Average was up 0.3% to 34,194.06. The Nasdaq Composite closed 1% higher at 11,285.32.

The Russell 2000 index of smaller companies gained 0.2% to close at 1,863.52.

Long-term government bond yields fell. The 10-year Treasury yield, which drives mortgage rates, slipped to 3.69% from 3.76%.

At their Nov. 1-2 meeting, Fed officials expressed uncertainty about how long it might be before their rate hikes would slow the economy enough to tame inflation. At a subsequent press conference, Chairman Jerome Powell stressed that the Fed was not even close to announcing victory in its fight against high inflation. Other Fed officials have signaled in the weeks since the meeting that further rate hikes are still needed.

The central bank’s policy rate is currently between 3.75% and 4%, up from near zero in March. She has warned that she may eventually have to raise rates to previously unexpected levels to cool the hottest inflation in decades.

Wall Street has been watching the latest economic and inflation data closely for signs that could allow the Fed to ease future rate hikes. Investors worry that the Fed could slow down economic growth too much and trigger a recession.

Consumer spending and the labor market have so far remained strong pillars of the economy. That has helped as a bulwark against a recession, but it also means the Fed may need to remain aggressive.

Technology stocks and some large retailers contributed a large portion of the benchmark S&P 500 index’s gains on Wednesday. Chipmaker Nvidia rose 3% and Target rose 3.5%.

Homebuilders broadly rose after a government report showed US new home sales rose more-than-expected in October. Lennar was up 1.6% and DR Horton was up 2.2%.

In energy trading, benchmark U.S. crude fell 47 cents to $77.47 a barrel. Brent crude, the international standard, fell 66 cents to $84.75 a barrel.

In forex trading, the US dollar fell from 139.57 yen to 138.87 Japanese yen. The euro costs $1.0435, versus $1.0399.

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