Asian stocks find relief as oil price eases
Asian stock markets rebounded with relief as oil prices rebounded and upbeat corporate earnings drew investors into technology stocks, while Japan’s first yen-buying intervention in two years stabilized the depreciating currency.
Apple added to the cheer by beating forecasts and offering an optimistic outlook for sales, but warned of chip supply constraints. Its shares rose 2.7 percent in extended trading, contributing to 10 percent gains for both Caterpillar and Alphabet, which beat expectations.
Hopes for continued profits have led the S&P 500 to rise more than 10 percent through April; Nasdaq, on the other hand, had its best performance since 2020, with a 15 percent increase. S&P 500 futures rose 0.2 percent on Friday, while Nasdaq futures gained 0.1 percent.
April was also a whirlwind month for Asia; Japan’s Nikkei gained 16 percent on a monthly basis, Taiwan 23 percent and South Korea almost 31 percent.
Market holidays limited reaction in Asia on Friday; Nikkei rose 0.4 percent and Australian shares rose 0.7 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3 percent.
Asia remains highly vulnerable to high energy prices, importing most of its oil and gas, and the flow of oil through the vital Strait of Hormuz is severely disrupted.
Iran said on Thursday it would respond with “prolonged and painful attacks” on US positions if Washington renewed its attacks and reasserted its claim over the strait.
This sent Brent crude oil up 1.2 per cent to US$111.70 per barrel, but that was well behind Thursday’s four-year high of US$126.41. US crude oil rose 0.5 percent to $105.64 per barrel.
Foreign exchange markets were also buoyed after sources said Japanese officials intervened to sell dollars for yen on Thursday, with the dollar initially falling five yen to 155.50, its lowest level in two months.
But buyers bounced back on Friday, sending the dollar higher to 157.29, signaling Tokyo may need to do more if it really wants to draw a line at the 160.00 yen barrier.
“Looking at history, the cost is likely to be tens of billions of dollars,” said Tim Baker, a macro strategist at Deutsche Bank, referring to the size of the intervention.
“We don’t believe USD/JPY will continue to fall or even stay here for long,” he argued. “Cross rates may be high relative to rates, but they are actually low relative to a simple model that includes rates, stocks and oil.”
Japan imports all of its oil, and the rise in crude oil prices is expected to sharply increase the country’s trade deficit.
The explosion in US dollar selling indirectly lifted the euro to $1.1729, pushing it away from a three-week low of $1.1655. The British pound rose to a 10-week high of $1.3612.
Both currencies were supported by hawkish comments from their respective central banks.
The Bank of England has warned that the effects of the Iran war could lead to “strong” interest rate rises if energy prices continue to climb, with a board member voting for an emergency rate hike.
European Central Bank President Christine Lagarde said that they are discussing whether to raise interest rates or not and noted that the data for the next six weeks will determine this issue.
“The messages conveyed during the press conference leave us with the clear perception that there is consensus among governors that they will raise policy rates at their next meeting on June 11,” analysts at Citi said in a note.
“We see no reason to change our expectation for back-to-back interest rate hikes in June and July.”
This follows a hawkish shift by the Fed on Wednesday, which saw markets abandon any hope of a rate cut this year.
The pivot left U.S. 10-year Treasury yields at 4.390 percent, up eight basis points for the week, but off the peak of 4.436 percent.
Elsewhere in commodity markets, gold was flat at US$4,623 per ounce, stuck in a tight trading range for more than a month.
The Australian Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national news channel and has been providing accurate, reliable and fast-paced news content to the media industry, government and corporate sector for 85 years. We inform Australia.
