Asian markets pushed higher Thursday, extending gains in New York and Europe, as a forecast-busting US retail sales report showed American consumers remain confident despite elevated inflation and the prospect of more interest rate hikes.
Traders have been tracking US data for months, with the general consensus being that, while good for the economy, a strong reading is bad for stocks as it adds pressure on the Federal Reserve to keep tightening monetary policy.
With this in mind, a massive half-a-million jump in new jobs last month was the spark for a sell-off across the world, and a prompt for central bank officials to warn rate hikes would need to go higher than expected and stay there longer.
News this week of a smaller-than-estimated drop in January inflation reinforced that view, further denting investor sentiment.
However, analysts said Wednesday’s jump in retail sales — the biggest since March 2021 — may have led some to change their minds from the “good news is bad news” mantra, and that the economy could avoid a “hard landing”, or recession.
Quincy Krosby, of LPL Financial, told Bloomberg Television that the gains were “telling us maybe we can keep going as long as inflation is coming down overall and growth is solid”.
And National Australia Bank’s Rodrigo Catril added: “Strength in retail sales figures have been supported by a strong labour market… and as noted by the New York Consumer survey earlier in the week, the US consumer is not worried about losing their job.
“The main takeaway is that the US consumer remains in rude health and with inflation still too high for comfort, the Fed has no alternative but to keep lifting the funds rate.”
All three main indexes on Wall Street initially sank on the latest figures before rebounding to end the day in the green, while European markets were also up with London boosted by a bigger-than-expected drop in inflation.
And after a rocky week so far, Asia picked up the baton.
Hong Kong, which has this month given up more than half of January’s rally, rose two percent, while Tokyo, Shanghai, Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta were also well up.
Still, there is a lot of nervousness on trading floors as investors try to gauge the outlook for the world’s top economy.
“Everybody is trying to figure out whether this is going to be a once-in-a-lifetime soft landing or if it’s just taking longer before we get a panic recession,” said First American Trust’s Jerry Braakman.
The dollar held gains against its major peers, having rallied Wednesday on expectations borrowing costs will continue to rise.
Tokyo – Nikkei 225: UP 0.8 percent at 27,723.60 (break)
Hong Kong – Hang Seng Index: UP 2.0 percent at 21,225.44
Shanghai – Composite: UP 0.5 percent at 3,295.71
Euro/dollar: UP at $1.0704 from $1.0693 on Wednesday
Pound/dollar: UP at $1.2041 from $1.2039
Euro/pound: UP at 88.91 pence from 88.80 pence
Dollar/yen: DOWN at 133.82 yen from 134.12 yen
West Texas Intermediate: UP 0.6 percent at $79.02 per barrel
Brent North Sea crude: UP 0.5 percent at $85.78 per barrel
New York – Dow: UP 0.1 percent at 34,128.05 (close)
London – FTSE 100: UP 0.6 percent at 7,997.83 (close)