Asian shares mostly rise on interest rate, inflation hopes

TOKYO — Asian shares were mostly higher Wednesday on hopes that the curbs on U.S. interest rates may moderate after new data showed signs of slowing inflation.

Benchmarks rose in early trading in Japan, South Korea and Australia, while slipping in China. Regional optimism was lifted by the easing of a COVID-19 lockdown in Shanghai. This development is a major boost for the region’s main drive of growth.

” The good news is that China will eventually come out of lockdowns and that there will be some stimulus from the authorities to re-energize the economy and communities. Clifford Bennett, chief economic economist at ACY Securities, stated that the light at the end is reasonably bright for China.

But Bennett quickly added: “Do not expect a return to rampant growth however.”

Japan’s benchmark Nikkei 225 jumped 1.4% in morning trading to 26,703.18. Australia’s S&P/AS 200 added 0.2% to 7,465.30. South Korea’s Kospi surged 0.7% to 2,686.14. Hong Kong’s Hang Seng lost 0.2% to 21,276. 10, while the Shanghai Composite shed 0.6% to 3,194.69.

In Tokyo trading, shares of Shionogi dropped 15% after the Japanese pharmaceutical company reported that animal tests for its experimental oral drug to treat COVID-19 showed it may risk fetal development. Japanese media reported that the drug will not be prescribed to pregnant women or those who may become pregnant.

Stocks ended slightly lower on Wall Street after investors weighed the inflation data for March, although overall it remained at its highest level in 40 years. Some analysts advised caution.

“”The fact remains that pricing pressures are still elevated at its highest level in 40 years and the near-term outlook for an aggressive tightening of policies to cool demand stays unaltered. Yeap Jun Rong is a market strategist at IG in Singapore. “The Fed Governor Lael Brainard’s comments overnight, who has been a well known dovish voice in Fed, continued to show a firm stance towards getting inflation down,” Yeap Jun Rong said.

The S&P 500 fell 0.3% after having been up 1.3% earlier in the day. This pullback extends the losing streak of the benchmark index to a third day. Investors are worried about economic collateral damage as high inflation is tackled more aggressively by the Federal Reserve.

The Dow Jones Industrial Average and Nasdaq composite both fell 0.3% after losing early gains.

The indexes rallied initially following the publication of the report. It showed that inflation was at its highest point in many generations due to soaring gasoline prices. The reading was still within economists’ expectations.

Another small silver lining is that inflation was not as bad as economists expected when you ignore the cost of food and fuel. Core inflation is what the Federal Reserve pays more attention when setting policy. It’s less volatile and is known as “core inflation”. Core inflation decreased to its lowest level since September on a month-overmonth basis.

“Hopefully this is as bad as it gets,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. The risk is that a hot labor market will become colder due to rising food, fuel and financing costs. This is a time when economic resilience will be tested.”

The S&P 500 fell 15. 08 points to 4,397.45. The Dow fell 87. 72 points to 34,220. 36, and the Nasdaq lost 40. 38 points to 13,371.57.

Small company stocks performed better than the wider market. The Russell 2000 rose 6. 61 points, or 0.3%, to 1,986.94.

Stocks have traded in the opposite direction to Treasury yields, which have risen to their highest levels since before the pandemic. Yields rose as investors waited for the Federal Reserve’s decision to raise short-term rates faster than usual and to reduce its trove of bonds that helped keep long-term rates low. However, Treasury yields fell on Tuesday after the inflation report. The 10-year yield slid to 2. 72% from 2. 77% late Monday. It was as high at 2. 83% overnight, before the inflation report’s release. The 10-year yield nevertheless remains well above the 1. 51% level where it began the year. Unease continues to hang over global markets regarding the war in Ukraine. In energy trading, benchmark U.S. crude added 43 cents to $101. 03 a barrel. It climbed 6.7% to settle at $100. 60 on Tuesday, keeping the pressure on high inflation. Brent crude, the international standard, rose 45 cents to $105.09. Higher interest rates from the U.S. Federal Reserve could slow down the economy and hopefully lower high inflation. Consumer prices were 8.5% higher in March than a year earlier, accelerating from February’s 7.9% inflation rate and the highest since 1981.

To bring it down, the Fed revealed in the minutes from its latest meeting that it’s prepared to hike short-term rates by half a percentage point, double the usual amount, at some upcoming meetings, something it hasn’t done since 2000. The concern is that the Federal Reserve could be so aggressive in raising interest rates that it causes a recession.

Higher interest rates also cause downward pressure on all types of investments, with the most expensive being the hardest hit. This has brought attention to technology and other high growth stocks, which have been some the stock market’s most recent winners.

On Tuesday, technology and financial stocks were among the biggest drags on S&P 500. Microsoft dropped 1.1%, and Wells Fargo fell 1.8%.

Stocks could be subject to more swings as companies prepare for reporting their earnings for the first three quarters of the year. JPMorgan Chase, Delta Air Lines and other large-name companies will be kicking off the reporting season on Wednesday.

In currency trading, the U.S. dollar edged up to 125. 58 Japanese yen from 125. 39 yen, The euro cost $1. 0830, little changed from $1.0832.

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AP Business Writers Stan Choe, Damian J. Troise and Alex Veiga contributed.