Most markets up, but more pain seen

DIGITAL DIGITS A man wearing a face mask walks near a bank’s electronic board showing the Hang Seng Index figures in Hong Kong on Tuesday, June 21, 2022. AP PHOTO

HONG KONG: Equities rose in most Asian cities on Tuesday as some stability returned to markets after last week’s upheaval, but analysts warned of further pain for traders after central bank officials hinted at more interest rate hikes to reel in inflation.

While there was no catalyst from Wall Street owing to a public holiday, a healthy performance across Europe provided a little boost and bargain-buying also lent support.

But there remains an overarching sense of gloom as traders speculate that the sharp lift in borrowing costs around the world would tip economies into a recession.

Focus this week is on Federal Reserve (Fed) Chairman Jerome Powell’s two days of testimony to lawmakers in Washington, D.C., which will be closely watched for insight into the United States central bank’s thinking and possible clues about its plans for fighting surging prices.

The Fed announced a three-quarter point lift last week after inflation data days earlier had smashed forecasts and hit a four-decade high.

“While [investors do] not expect Powell to reinvent the policy wheel, we could expect him to reinforce the idea that the Fed is in data-dependent mode,” Stephen Innes of SPI Asset Management said.

“Hence, any shift in Fed rhetoric will be a function of incoming data, virtually all of which now presents event risk,” he added.

“From that perspective, further evidence of persistent inflation will trigger policy panic, while any signs of sluggish growth momentum will confirm the recession narrative,” Innes said. “Neither suggests that now is the time to board the rally wagon.”

Tokyo, Hong Kong, Sydney, Seoul, Singapore, Wellington, Taipei, Mumbai, Bangkok and Jakarta all rose, but Shanghai and Manila slipped.

London barely moved at opening trade, while Paris and Frankfurt edged up.

“There might be a narrative that we’ve hit a bottom, we are oversold. The Fed is taking inflation seriously and that might be slightly bullish in the interim,” Frances Stacy, of Optimal Capital, told Bloomberg Television.

However, while the volatility of last week is over, banks’ intention to continue hiking rates could cause fresh ructions.

Several officials — including at the Fed, Bank of England, Reserve Bank of Australia and European Central Bank — have come out in recent days to flag a further tightening of borrowing costs.

In commodities markets, oil extended gains as traders moved back in after Friday’s plunge fueled by concerns over a possible recession.

The gains have been helped by optimism for a boost to demand as China gradually eases out of its period of Covid-19 containment, while the US summer driving period picks up.

“The physical market is as tight as ever, and thus, the speculative capitulation in futures markets [on Friday] probably shouldn’t be taken as a picture of the reality on the ground in the real world,” Oanda’s Jeffrey Halley said.

“The bottom line seems to be that until we see physical demand destruction, oil and other energy markets are as tight as ever,” he added.