Asian stocks are gaining as fears of rapid rate hikes from the Fed and the banking crisis fade

SINGAPORE, March 15 (Reuters) – Asian stocks rose sharply on Wednesday, following a relief rally on Wall Street and as US inflation data delivered no nasty surprises, hopes were bolstered that the Federal Reserve is likely to go for a smaller rate hike when it meets next week .

Investors piled back into stocks in US markets overnight as fears of contagion in the banking sector after the collapse of Silicon Valley Bank (SVB) eased last week.

MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) was up 1.44%, after falling 1.7% on Tuesday after the collapse of the SVB in the last few trading sessions led to massive investor selloffs.

The Australian S&P/ASX 200 index (.AXJO) was up 0.33% in early trading, while Japan’s Nikkei (.N225) remained mostly flat.

Chinese equities (.SSEC) rose 0.46%, while the Hong Kong Hang Seng Index (.HSI) rose 1.4%.

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Data on Wednesday showed China’s industrial production rose 2.4% year-on-year in the first two months of 2023, an acceleration from a year-on-year increase of 1.3% in December. The data slightly missed predictions for a 2.6% rise in a Reuters analyst poll.

“It is clearly dominated by a rally of relief rather than inflation fears,” said Robert Carnell, regional head of Asia-Pacific research at ING.

“I assume the US banking sector is returning to stability, with savers getting the pretty clear signal that they won’t lose.”

Investors were also relieved after Tuesday’s February US inflation report showed consumer prices rose 0.4%, with a year-on-year gain of 6% – in line with analysts’ expectations, as there were concerns that stronger than expected data could lead the Fed to take big hikes to fight inflation.

As recently as last week, markets prepared for the return of big rate hikes from the Fed, but the rapid collapse of the SVB has changed those expectations, with market prices at an 80% chance of a 25 basis point rate hike next week.

“It feels like the 50 basis point step for this month’s meeting that has been speculated about, especially after Powell’s comments to the Senate Banking Committee. Nobody expects that anymore,” Carnell said.

US Treasury yields rose by 10am in Asia after falling sharply at the start of the week. The yield on 10-year Treasury bills rose 3.8 basis points to 3.674%.

The two-year US Treasury yield, which generally moves in line with interest rate expectations, rose 6.9 basis points to 4.294%, but was well below last week’s peak of 5.084%.

In the foreign exchange market, the greenback held steady, with the dollar index, which measures the US currency against six rivals, at 103.64, while the euro was unchanged at $1.0732.

The Japanese yen weakened 0.08% to 134.30 per dollar, while the pound last traded at $1.2157, down 0.01% on the day.

US crude rose 1.07% to $72.09 a barrel and Brent was at $78.16, up 0.92% on the day.

Gold prices were on edge, with spot gold adding 0.1% to $1,904.11 an ounce.

Edited by Sam Holmes

Our Standards: The Thomson Reuters Principles of Trust.

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