Asia stocks rise, set for strong week as inflation fears recede

By Ambar Warrick

Investing.com -- Most Asian stock markets rose on Friday and were headed for steep weekly gains on the prospect of a less hawkish Federal Reserve this year after data showed U.S. consumer inflation eased as expected in December.

Technology-heavy bourses in Taiwan, South Korea, and Hong Kong were among the biggest gainers for the week as Treasury yields and the dollar retreated on the soft inflation reading. The KOSPI, Hang Seng, and Taiwan Weighted indexes were set to add between 2.8% and 4.4% this week, with the KOSPI in the lead.

The three indexes also rose between 0.3% and 1% on Friday.

Chinese stocks rose amid continued optimism over an economic rebound in the country, after the country reopened its international borders for the first time in three years. The Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rose 0.8% and 0.6%, respectively, and were set for a third straight week of gains.

Data on Friday also showed better-than-expected growth in the country’s trade balance. This, coupled with a mild improvement in inflation in December showed that economic growth was improving after the lifting of most anti-COVID lockdowns.

Broader Asian markets were positive, with risk-heavy Southeast Asian stocks seeing outsized gains. Philippine stocks were the best performers in the region with a 1.4% bounce.

Data on Thursday showed that U.S. consumer price index inflation fell as expected in December, putting less onus on the Federal Reserve to keep hiking interest rates at a sharp clip.

The trend is likely to result in lesser pressure on risk-heavy Asian markets this year. Traders are now pricing in a nearly 95% chance the Fed will hike rates by a relatively smaller 25 basis points in February.

But while interest rates are expected to peak this year, markets are also wary of a potential recession, especially as the effects of tight monetary policy become more pronounced. Slowing growth in major economies could bode poorly for sentiment toward risk-driven markets.

Indian stocks bucked the trend on Friday, with the Nifty 50 and BSE Sensex 30 indexes falling 0.3% and 0.1%, respectively, as data showed CPI inflation remained steady in December. The trend may attract more interest rate hikes by the Reserve Bank.

Australia’s ASX 200 index rose 0.7%, buoyed chiefly by major mining stocks on the prospect of a recovery in Chinese demand. Shares of BHP Group Ltd (ASX:BHP), the world’s largest miner, rose 0.5% to a record high.