Asian stocks gained ground on Wednesday after Federal Reserve chief Jerome Powell said the bank would hike interest rates gradually to fight inflation, though oil marched towards $120 a barrel as the Ukraine conflict continues to roil energy markets.
With the Russian invasion of its neighbour hammering assets across the board as uncertainty reigns supreme, traders saw a much-needed ray of hope when the Fed boss eased concerns over its plans for tightening policy.
Powell told lawmakers he was in favour of a moderate pace of rate increases, with a 25-basis-point lift this month, as he tries to nurture the economic recovery while keeping a lid on prices, which are rising at their fastest pace in 40 years.
He warned that the “near-term effects on the US economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain.”
The comments soothed concerns that officials could announce an aggressive 50-basis-point lift. The issue of Fed tightening has cast a shadow over markets for months, bringing a near two-year rally to an abrupt end, and that has now been compounded by the Ukraine crisis.
Powell did, however, say the bank would remain “nimble” to events and would act more aggressively if needed down the line.
Wall Street ended sharply higher with all three main indexes more than 1% up. And Asia followed suit with Tokyo, Hong Kong, Sydney, Seoul, Taipei and Singapore leading healthy gains, though Shanghai and Mumbai edged slightly lower.
The benchmark Nikkei 225 index closed up 0.70% or 184.24 points at 26,577.27 while the broader Topix index rose 1.18% or 21.86 points to 1,881.80.
The Hang Seng Index added 0.55%, or 123.42 points, to 22,467.34. The Shanghai Composite Index dipped 0.09%, or 3.08 points, to 3,481.11, while the Shenzhen Composite Index on China’s second exchange dropped 0.83%, or 19.10 points, to 2,294.08.
London and Paris rose at the open but Paris dipped.
The gains were also helped by news that Ukraine and Russian officials will hold a second round talks to end the war. But analysts warned of further volatility for some time as fighting continues to rage in Ukraine.
Widespread sanctions across the world against Russia threaten to bring its economy to its knees, while Moody’s and Fitch have slashed its rating to junk.
Meanwhile, the country’s equities are set to be removed from closely followed indexes by MSCI and FTSE Russell, further isolating Moscow from the global economy.
While the war is making finance chiefs re-think their plans, central banks appear intent to keep on the tightening track for now, with the Bank of Canada on Wednesday announcing a rate rise.
The major source of angst for policy-setters is the spike in oil prices, which has been a key driver of inflation this year owing to narrow supplies and soaring demand and is now being amplified by the conflict in Europe.
OPEC Rejects Output Lift
On Thursday Brent crude continued to storm higher, at one point hitting $119.84 a barrel for the first time since early 2012. WTI also touched $116.57 for the first time since 2008.
While world governments have not included Russian oil in their wide-ranging sanctions on Moscow owing to concerns about the impact on prices and consumers, trade has become increasingly tough as banks pull financing and shipping costs rise.
OPEC and other major producers, including Russia, refused on Wednesday to lift output by more than their previously agreed amount, dealing a blow to hopes of an easing in supply pressures.
An agreement by the United States and 29 other countries to release 60 million barrels from their reserves has had little impact on the relentless rise in prices.
Other commodities are also elevated with European natural gas benchmarks and aluminium at records.
Key figures around 0820 GMT
Brent North Sea crude > UP 5.5% at $119.10 per barrel
West Texas Intermediate > UP 4.8% at $115.86 per barrel
Tokyo > Nikkei 225: UP 0.7% at 26,577.27 (close)
Hong Kong > Hang Seng Index: UP 0.6% at 22,467.34 (close)
Shanghai > Composite: DOWN 0.1% at 3,481.11 (close)
London > FTSE 100: UP 0.1% at 7,434.22
New York > Dow: UP 1.8% at 33,891.35 (Wednesday close)
- AFP with additional editing by Sean O’Meara