Down … but not out

4:10 pm Thursday, September 08th, 2022

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever

World markets survived a one-two punch from the European Central Bank (ECB) and Federal Reserve Chairman Jerome Powell on Thursday, giving investors hope that Asia can end a bruising week on a rare positive note.

The ECB raised interest rates by an unprecedented 75 basis points and Powell signalled that the Fed will do so again later this month, further evidence that central banks remain committed to lowering inflation, regardless of the collateral damage.

“We expect to raise interest rates further, because inflation remains far too high,” warned ECB President Christine Lagarde, while Powell said “we need to keep at it until the job is done.”

This followed a 75-basis point hike from Canada 24 hours earlier, while one of Britain’s largest ever peacetime fiscal packages to tackle the energy crisis suggests UK monetary policy might be tightened more quickly.

Given all that, world stocks did well to rise for a second day – marking the first two-day winning streak since Aug, 24-25. Financials, in particular, liked the prospect of higher rates.

Even more surprising, bond yields were little changed on the day, with British gilt yields coming back down from an 11-year high earlier. Perhaps there is only so much policy tightening markets can take in a week.

The focus in Asia on Friday once again turns to China. On the data front, consumer and producer price inflation for August will be released, while investors will be watching for developments in the crisis enveloping property developer Evergrande.

The beleaguered group – the world’s most indebted developer, saddled with more than $300 billion in liabilities – this week appointed a receiver to seize its Hong Kong headquarters.

Key developments that should provide more direction to markets on Friday:

China CPI and PPI (Aug)

Japan money supply (Aug)

India FX reserves

Canada unemployment (Aug)

(Reporting by Jamie McGeever in Orlando, Florida; Editing by Marguerita Choy)