By Tom Westbrook
SINGAPORE (Reuters) – Asia’s stocks rose on Thursday, with investors choosing to cheer strong U.S. retail sales data as good news for earnings rather than worry about it being likely to support interest rate rises.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.5%, its best session in more than a month, with tech stocks up 4% in Hong Kong. [.HK]
Japan’s Nikkei rose 0.7%. European futures rose 0.5%.
The mood nudged the greenback from six-week highs against the yen, yuan and kiwi, though only by a little bit as bond and currency markets have been more focused on rates implications.
Benchmark 10-year Treasury yields, which rise when bond prices fall, hit their highest since early January, before falling back slightly to 3.786%. [US/]
U.S. retail sales increased by the most in nearly two years in January – up 3%, against expectations of a 1.8% rise – as Americans spent freely despite higher borrowing costs.
The figures came on the heels of stronger-than-expected labour data and with stickier-than-expected inflation.
Equities – with the Nasdaq up 15% so far this year – are clinging to the positives, while in interest rate markets investors are quickly ditching hopes for cuts later in 2023.
“A lot of the data has been quite positive, so people might be thinking: ‘Where’s the recession?'” said Jason Wong, a senior market strategist a BNZ in Wellington.
“It’s positive for earnings and that can offset rates – at least that’s the charitable explanation,” he said. “Either that, or it’s a massive ‘sell’ (signal).”
U.S. interest rate futures – which only a couple of weeks ago implied the Fed funds rate, currently fixed between 4.5% and 4.75%, would drop below 4.5% by year’s end – now see rates above 5% through the year.
Two-year Treasury yields, which also track short-term interest rate expectations, hit their highest since November at 4.703% overnight. S&P 500 futures rose 0.2%.
Central bankers are out in force later, with European Central Bank board member Fabio Panetta, Bank of England chief economist Huw Pill, Bank of Canada Governor Tiff Macklem and Fed officials James Bullard and Loretta Mester among the speakers.
DOLLAR ASCENDANT
While equities keep climbing, the repricing of the interest rates outlook is nevertheless putting the brakes on a couple months of selling of the dollar in currency markets.
The U.S. dollar index is eying a third weekly gain in a row – the longest streak since September, when the index was galloping towards a 20-year high. [FRX/]
The dollar made a six-week high of 134.36 yen on Wednesday and hovered at 133.79 on Thursday. It eased a little bit on the euro to $1.0709 and the dollar index slipped 0.1% to 103.65.
The Australian dollar was knocked down $0.6868 after a surprise rise in unemployment that also cooled bets on interest rate hikes, but it drifted up to $0.6924 in afternoon trade.
“The Aussie still has some support around the $0.6850/80 area, but with the U.S. dollar in the ascendancy, the Aussie is certainly looking vulnerable,” said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.
Australia’s equity market, where companies are in the midst of earnings reporting, rose 0.8%. Wealth manager AMP led losers with a 34% annual profit drop that sent its struggling shares down 13%. A 26% gain in profit at telco Telstra drove the stock to a one-year high. [.AX]
Commodities have struggled for traction as the dollar has gained. Brent crude futures rose 50 cents to $85.89 a barrel. Gold, which pays no income and has been dragged down by rising Treasury yields, stabilised at $1,840 an ounce.
Bitcoin, meanwhile, has been on a tear. It hit a six-month high of $24,895, partly boosted by news of big investors taking stakes in crypto bank Silvergate.
(Reporting by Tom Westbrook; Editing by Bradley Perrett and Sam Holmes)