(Bloomberg) — Equities in Asia extended the remarkable rebound that saw US stocks roar back from losses sparked by a hot inflation reading. The dollar fell against most of its peers.
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An index of the region’s shares headed for the biggest gain in seven months, led by a surge of as much as 5% in Hong Kong-listed technology companies. Futures contracts for US and European shares also pushed higher in the face of consumer price data that cemented bets for the Federal Reserve to deliver another jumbo rate hike in November.
The yen resumed its drop in Asia after falling to its lowest level in more than 30 years after US CPI, only to reverse the move in a whiplash trade. Treasuries fluctuated after the policy-sensitive two-year yield soared 17 basis points Thursday.
With higher interest rates piling pressure on an already struggling global economy, the latest moves underscore the difficulties traders face in volatile markets. Speculation the yearlong selloff in equities had reached a bottom was cited as one potential reason for the rebound. Others included short covering, less-than-terrible earnings reports and sturdy positioning including well-provisioned hedges.
Technical levels factored into the bounce. At one point, the benchmark S&P 500 had given back 50% of its post-pandemic rally, triggering programmed buying. A wave of put options bought to protect against such a rout moved into the money, and as profits were booked, that prompted dealers to buy stocks to remain market neutral.
Cryptocurrencies also got a boost from the improved risk appetite in global markets, lifting Bitcoin to a one-week high and putting the largest token on the cusp of retaking the $20,000 level.
“I expect inflation to come down significantly on a year-over-year basis by the middle of next year,” David Chao, a global market strategist at Invesco, said by email. “Typically, that creates a nice backdrop for equities and credit but there will likely be more downside between now and then.”
Market bets on rates still lean toward back-to-back 75 basis-point hikes at the next two Fed meetings and expect the central bank to push rates past 4.85% before the tightening cycle ends.
Investors will have a chance to hear more from the Fed on Friday, with Esther George, Lisa Cook and Christopher Waller scheduled to speak later in the day.
Inflation figures in China proved relatively subdued, as a pickup in food prices countered the effects of lockdowns that are crimping economic activity. Traders were looking to China’s twice-a-decade Party Congress for policies to help revive its economy and markets.
One of the biggest challenges for investors in Asia is the ongoing strength in the dollar, according to Isaac Poole, chief investment officer at Oreana Financial Services. “Inflation print makes it more likely the global reserve remains elevated in the near term,” he said. “It is not time to be adding lots of risk, but also not time to be dialing risk back massively.”
The pound steadied on Friday in Asian trade as investors girded for more turmoil in UK markets, with Bank of England’s emergency bond buying entering its last day.
Elsewhere, both oil and gold headed for weekly losses as signs of a global economic slowdown and tighter monetary policy threaten to sap energy consumption. The International Energy Agency earlier warned production cuts agreed by OPEC+ risked causing oil prices to spike and tipping the global economy into recession.
Key events this week:
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Earnings on Friday: JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley, UnitedHealth Group Inc., U.S. Bancorp, Wells Fargo & Co.
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US retail sales, business inventories, University of Michigan consumer sentiment, Friday
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BOE emergency bond buying is set to end, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures rose 0.5% as of 7:22 a.m. London time. The S&P 500 rose 2.6% Thursday
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Nasdaq 100 futures rose 0.5%. The Nasdaq 100 rose 2.3%
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Japan’s Topix index surged 2.4%
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South Korea’s Kospi index rose 2.3%
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Hong Kong’s Hang Seng Index gained 2.5%
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China’s Shanghai Composite Index was up 1.9%
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Australia’s S&P/ASX 200 added 1.8%
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Euro Stoxx 50 futures gained 1.6%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro rose 0.1% to $0.9787
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The Japanese yen fell 0.2% to 147.48 per dollar
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The offshore yuan was little changed at 7.1760 per dollar
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The British pound was little changed at $1.1315
Bonds
Cryptocurrencies
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Bitcoin rose 2.2% to $19,804.97
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Ether rose 2.6% to $1,326.97
Commodities
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West Texas Intermediate crude rose 0.3% to $89.42 a barrel
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Spot gold rose 0.3% to $1,670.59 an ounce
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