Asian stocks rebounded from the longest losing streak since May after weaker-than-anticipated US data triggered a delay in investor expectations for a US interest-rate increase, spurring a rally in risk assets.
The MSCI Asia Pacific Index rose 0.5 percent to 137.10 on Friday, halting a six-session run of declines and paring this week’s loss to 2.3 percent.
Reports on Thursday showed that US industrial production contracted more than forecast, while retail sales unexpectedly slid, sending the odds for a rate increase from the US Federal Reserve next week to less than 20 percent.
About US$2 trillion was erased from the value of global equity markets in the past week amid concern central banks are reluctant to boost stimulus even as the global economy sputters.
“The bulls have wrestled some sort of control,” said Chris Weston, Melbourne-based chief market strategist at IG Ltd. “Anyone left calling for a September hike next week from the Federal Reserve must be feeling a bit hot under the collar after further signs of economic vulnerabilities.”
WEAK US DATA
After charging through the second quarter, the US consumer is showing signs of exhaustion at the start of the second half of the year, with core sales falling 0.1 percent last month. Industrial production declined 0.4 percent, worse than economists’ forecast of a 0.2 percent drop. Traders are now pricing in an 18 percent chance of a rate increase at the Fed’s meeting on Wednesday, down from 34 percent at the start of the month and 20 percent before the data.
The Bank of England on Thursday maintained its level of asset purchases, with attention now switching to the Fed and the Bank of Japan (BOJ), both of which meet to review policy next week. Forecasts on what the BOJ may decide vary, with everything from increasing buying of government bonds, further deepening negative rates, or no action being taken at all being floated as possibilities.
“Expectations of what the BOJ might announce next Wednesday, be it more easing or more tightening, are unprecedented in their divergence,” said Christopher Wood, chief equity strategist at CLSA Ltd in Hong Kong. “The result is even more uncertainty than normal, creating a potentially extremely perilous environment for macro speculators.”
Japan’s TOPIX rose 0.8 percent as banks rebounded. The market will be closed tomorrow and on Thursday, while the BOJ’s decision will be announced on Wednesday.
Taiwan’s markets were shut on Thursday and Friday for the Mid-Autumn Festival. The TAIEX closed 0.4 percent lower at 8,902.30 on Wednesday. That was also down from 9,053.69 on Sept. 9.
Markets were also shut for holidays on Friday in China, Hong Kong, Malaysia and South Korea.
The Singapore’s Straits Times Index climbed 0.6 percent and Indonesia’s Jakarta Composite Index added 0.2 percent. Australia’s S&P/ASX 200 Index gained 1.1 percent and New Zealand’s S&P/NZX 50 Index advanced 0.8 percent.
Investors have sold everything from raw-materials companies to utilities in what has been the biggest weekly loss for the MSCI Asia Pacific index since June.
Japanese banks were hit hard this week amid concern a deeper dive into negative rates by the BOJ would curb an earnings recovery. Mitsubishi UFJ Financial Group Inc’s main lending unit urged the central bank to consider the side effects of negative interest rates at next week’s meeting, saying the policy would continue to squeeze lending income.
While bank shares recovered some losses on Friday, they still posted the worst performance in 10 weeks.
Apple Inc suppliers surged after the iPhone maker climbed to its highest since December in the US amid growing optimism over the iPhone 7’s market reception. Japan Display Inc soared 11 percent and Alps Electric Co rose 6.3 percent.
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