Asia markets extend rally on rate hopes, OPEC in focus

Asian investors joined their Wall Street counterparts in an equity buying spree Wednesday as more data pointing to weakness in the US economy further fanned hopes the Federal Reserve could temper its rate hike campaign.

The much-needed dose of optimism has also put pressure on the dollar, pushing it down against most of its peers and adding to the upward march in oil prices fuelled by expectations OPEC will announce a massive output cut later in the day.

The mood on trading floors was lightened Monday by data showing US factory activity slowed more than forecast in September to a two-year low, suggesting the Fed’s rate hike campaign against decades-high inflation could be kicking in.

That was followed Tuesday by news that US job openings had also dropped by almost 10 percent in August, its fastest fall since April 2020.

“Rate hikes are really beginning to take a bite out of the US employment numbers,” said Matt Simpson, of City Index.

He added that the figures put more emphasis on jobs reports out later in the week, with weak readings likely to provide more support to stocks as investors bet the Fed will temper its tightening campaign.

However, officials at the central bank continue to flag their determination to crush inflation, even if that means sparking a recession.

“For the market to continue higher, the jobs data will have to be in-line with, or short of expectations,” said Lindsey Bell, of Ally Financial.

The market is currently anticipating a “Goldilocks” labour market report that’s “not too hot and not too cold”.

All three main indexes on Wall Street rallied Tuesday, with the S&P 500 and Nasdaq up more than three percent. European markets also thundered higher Tuesday, though they gave back some of those gains in early trade Wednesday.

And Asia continued the run, with Hong Kong rocketing almost six percent as investors there returned from a one-day break, while there were also healthy performances in Tokyo, Singapore, Sydney, Wellington, Bangkok, Seoul, Taipei, Jakarta and Manila.

‘No time to get carried away’ –

“It’s been a very impressive relief rally, albeit one aided by a rose-tinted interpretation of certain economic indicators and a terrible plunge in the weeks before,” said OANDA’s Craig Erlam. 

“This isn’t the time to get carried away but it is understandable that we’re seeing some relief. It all hangs on whether the data is the start of a weakening trend or just a blip, as with the July inflation drop.”

The gains in Asia were also helped by a smaller-than-expected rate hike by the Reserve Bank of Australia.

That came after the Bank of England last week pledged to pump billions of dollars into supporting financial markets after they were hammered by the UK government’s big-borrowing mini-budget.

The BoE pivot “seems to have convinced investors that the Fed now must give more weight to financial stability, which means that the current monetary tightening cycle might end sooner rather than later”, Ed Yardeni, president of Yardeni Research, said.

Focus is now on the meeting later Wednesday of OPEC and other major producers, who are reportedly considering a two million barrels cut in output — double what had earlier been flagged — after prices plunged to their January lows owing to recession concerns.

But such a large reduction would likely annoy the United States, which has joined several other countries in releasing crude from their emergency supplies to help tamp down the cost of energy, which is a key driver of inflation.

Both main contracts have bounced this week on talk of the reductions, while the weaker dollar makes the commodity cheaper for buyers using other currencies.

WTI and Brent edged down slightly Wednesday with downward pressure coming from news that Russia will resume gas deliveries to Italy after suspending them over a transport problem in Austria.

However, analysts said the commodity may have more road to run up as supplies tighten and the dollar softens.

Key figures around 0810 GMT –

Tokyo – Nikkei 225: UP 0.5 percent at 27,120.53 (close)

Hong Kong – Hang Seng Index: UP 5.9 percent at 18,087.97 (close)

Shanghai – Composite: Closed for a holiday

London – FTSE 100: DOWN 0.4 percent at 7,058.05

Pound/dollar: DOWN at $1.1423 from $1.1477 on Tuesday

Euro/dollar: DOWN at $0.9961 from $0.9992

Euro/pound: UP at 87.15 pence from 87.03 pence

Dollar/yen: UP at 144.44 yen from 144.09 yen

West Texas Intermediate: DOWN 0.2 percent at $86.31 per barrel

Brent North Sea crude: DOWN 0.2 percent at $91.63 per barrel

New York – Dow: UP 2.8 percent at 30,316.32 (close)

— Bloomberg News contributed to this story —