Asian shares have rebounded from their retreat a day earlier, tracking Wall Street’s recovery from the Federal Reserve’s reminder it will eventually provide less support to markets.
Japan’s benchmark Nikkei 225 jumped 2.8 per cent in morning trading to 28,785.24. Australia’s S&P/ASX 200 added 1.4 per cent to 7,336.30. South Korea’s Kospi rose 0.6 per cent to 3,260.11. Hong Kong’s Hang Seng edged up 0.1 per cent to 28,522.78, while the Shanghai Composite gained 0.9 per cent to 3,559.32.
Although the latest bout of jitters over a possible easing of help from the Federal Reserve and other central banks appears to have passed, analysts said rising coronavirus cases in the region remained a concern.
“Much of the region is dealing with renewed waves of Covid-19 infections. These waves, especially in the case of India, Indonesia and some other countries in Southeast Asia, are the most severe yet,” said Venkateswaran Lavanya at Mizuho Bank in Singapore.
On Monday, the S&P 500 snapped 1.4 per cent higher, to 4,224.79, recovering nearly three-quarters of its worst weekly loss since February. Oil producers, banks and other companies that were hit particularly hard last week led the way.
The Dow Jones Industrial Average gained 1.8 per cent to 33,876.97 and the Nasdaq composite rose 0.8 per cent, to 14,141.48.
Investors are still figuring all the ramifications of the Fed’s forecast that may start raising short-term interest rates by late 2023. That’s earlier than previously thought. The Fed also began talks about slowing programs meant to keep longer-term rates low, an acknowledgement of the strengthening economy and threat of higher inflation.
The market’s immediate reaction to last week’s Fed news was to send stocks lower and interest rates higher. Higher rates would make stock prices, which have been climbing faster than corporate profits, look even more expensive than they do already.
But it’s not like the Fed said it will hike rates from their record low of nearly zero anytime soon.
“If markets are worried about a march back to more normal monetary and fiscal policy as the economy recovers, it will be a very long march,” Barings chief global strategist Christopher Smart said in a note. In the meantime, support from both the Federal Reserve and the US government should continue to help stock prices, even if they do look expensive compared with history, he said.
Companies whose profits are the most closely tied to the economy’s strength and inflation were among the market’s strongest on Monday.
Hess, Marathon Oil and Devon Energy all rose at least 6.9 per cent as energy stocks rallied with the price of oil. Banks were also strong, with Bank of America up 2.5 per cent and Wells Fargo climbing 3.7 per cent.
High-growth companies able to flourish almost regardless of the economy lagged behind in a reversal from last week’s trend when investors rattled by the Fed piled back into the biggest winners of the pandemic.
Amazon slipped 0.9 per cent, and the lagging performance for tech meant the Nasdaq trailed other indexes.
More bumps may be ahead for markets, which had been mostly quiet for weeks before the Fed’s announcement. Fed Chair Jerome Powell will speak before a House subcommittee on Tuesday about the Fed’s response to the pandemic.
In energy trading, benchmark US crude picked up 13 cents to $73.25 a barrel in electronic trading on the New York Mercantile Exchange. It jumped from $1.83 to $73.12 on Monday. Brent crude, the international standard, gained 23 cents to $75.13 a barrel.
In currency trading, the US dollar rose to 110.39 Japanese yen from 110.31 yen. The euro rose to $1.1918 from $1.1914.
