Most Asian stocks rose on Thursday, buoyed by a rally in the technology sector as somewhat middling comments from the Federal Reserve spurred bets that the central bank was done with its run of interest rate hikes.
But Chinese stocks saw little gains, as a string of weak economic readings from the country kept traders largely averse.
While the Fed kept rates steady on Wednesday, comments from Chair Jerome Powell suggested that interest rates may not rise further this year, especially as the U.S. economy cools. This saw U.S. Treasury yields fall sharply in overnight trade, in turn boosting technology stocks.
A positive finish on Wall Street also provided a strong lead-in to regional stocks, as the NASDAQ logged solid gains on falling yields.
Asian tech rallies as Treasury yields ease
Tech-heavy Asian indexes were the best performers on Thursday, with Hong Kong’s Hang Seng and South Korea’s KOSPI up 1.8% and 2%, respectively. The KOSPI rose even as data showed that Korean consumer inflation grew more than expected in October.
U.S. Treasuries fell sharply in overnight trade after Powell said that while the Fed still had a long way to go before meeting its 2% inflation target, monetary conditions had tightened substantially in recent months.
Powell still left the door open for more potential hikes, but reiterated that they will be contingent on the path of the U.S. economy. Given that his comments came a few hours after the release of weaker-than-expected manufacturing activity data, investors bet that a cooling U.S. economy will stem any more rate hikes.
Higher rates weigh on tech stocks by diminishing their future earnings potential. This trend had battered the sector as the Fed hiked rates sharply over the past year.
Futures for India’s Nifty 50 index pointed to a positive open, given that the index has heavy exposure to the tech sector.
But despite Thursday’s rally, most Asian markets were still nursing steep losses for October. While the Fed is expected to not hike rates further, it is also set to keep them higher for longer- a scenario that is expected to limit any major gains in Asian markets.
Focus this week is now on key U.S. nonfarm payrolls data, due on Friday. Any signs of cooling in the jobs market are likely to spur more bets on a Fed pause this year.
Tech investors were also awaiting key earnings from iPhone maker Apple Inc (NASDAQ:AAPL), due later on Thursday.
Chinese stocks lag as economic fears persist
China’s Shanghai Shenzhen CSI 300 rose 0.2%, while the Shanghai Composite index was flat as despite the improved risk sentiment, traders remained largely wary of Chinese markets.
A string of weak purchasing managers index readings this week showed that China’s manufacturing sector contracted in October, raising doubts over an economic rebound this year.
The weak data added to concerns over a meltdown in China’s housing market, as house prices plummeted and as several major developers still faced default risks.