Strong overnight stock gains in the U.S. and Europe continued in Asia on Thursday, though volumes in much of the region were capped by the coming Lunar New Year holiday.
Chinese and South Korean markets are closed starting Thursday, joining Taiwan. Hong Kong, Singapore and Malaysia FBMKLCI, +0.18% traded for a half-day.
Singapore’s benchmark STI, +1.19% rebounded 1.2% in the shortened session and Hong Kong stocks HSI, +1.97% jumped 2%, with the Hang Seng Index’s 5.4% rebound this week erasing half of last week’s decline, its biggest fall in a decade
It was the Hang Seng’s best week since April 2015, and traders said volume remained high even without mainland Chinese flows through the Stock Connect system that ties markets there with Hong Kong’s. Some investors are likely closing short positions in the city’s equities ahead of the holiday.
“If you’ve made any money, you’re going to take it off the table,” said Neil McLean, head of execution trading for Asia ex-Japan at institutional brokerage Instinet. “Why leave it all sitting out there while western markets are open in a period of volatility?”
Meanwhile, stocks in Japan rebounded despite fresh gains for the yen, which had sent the Nikkei Stock Average to four-month lows on Tuesday and Wednesday. The index NIK, +1.47% , after falling a combined 3.4% the prior three days, closed up 1.5%.
Financials were among the big gainers as U.S. Treasury yields hit fresh multiyear highs Wednesday. That included Dai-ichi Life 8750, +5.04% , which jumped 5% to erase the week’s decline.
The dollar, after sliding Wednesday following a stronger-than-expected U.S. consumer inflation report and unexpectedly soft retail sales, was recently at fresh 15-month lows against the yen around ¥106.50.
Fears of cost-of-living increases and worries that the Federal Reserve would have to act to cool the U.S. economy triggered a global stock swoon earlier this month. But there was no repeat of that Wednesday as the weak retail sales “really helped to cushion the consensus about inflation and any rapid rate hikes,” said Jane Fu, sales trader at CMC Markets in Singapore.
Other strategists said taking cues from Wall Street that all is well may be misguided.
Volatility futures signal that the market is pricing in further market upheavals to come, said Steve Sosnick, chief options strategist at Interactive Brokers.
“People have been conditioned to buy the dip and that’s been a strategy that’s worked for the better part of the last few years,” he said. “Buy-the-dip worked because the Fed and other central banks were clearly pumping liquidity into the system. Now we’re in a situation where that’s abating.”
Elsewhere, Australia’s S&P/ASX 200 XJO, +1.16% rebounded 1.2% as Brent oil futures closed back in on $65 after an overnight rebound. Saudi Arabia’s oil minister said the biggest producer in the Organization of the Petroleum Exporting Countries would continue to back production cuts even if they “overbalance the market a little bit.” The stock index’s energy component rose 2.4% to reverse some of this month’s decline.
Following the U.S. inflation data, and the potential implications that has for the pace of Federal Reserve rate increases this year, investors will closely scrutinize speeches late Thursday by policy makers from the European Central Bank to see whether recent market turmoil will convince them to ease off plans to taper their bond purchases, said Société Générale.
“We think they might signal that the recent market turbulence is not a source of concern given the strength of the current expansion,” the investment bank added.
Ten-year Treasury yields TMUBMUSD10Y, +0.82% were recently at 2.919% while the ICE U.S. Dollar Index DXY, -0.32% fell a further 0.3% in Asian trading. The Fed targets another measure of inflation but the consumer-price index remains closely watched by market participants.
On the Asia-Pacific data front, the Australian dollar fell slightly after the country’s January employment report, which marked 16 consecutive months of job creation.
Declines in full-time employment were more than offset by gains in part-time payrolls, a reading that’s “a bit of a concern,” said Paul Dales, chief Australia & New Zealand economist at Capital Economics. “While the continued strength of the labor market will support consumption growth this year, without much more wage inflation” Australia’s central bank won’t be raising interest rates soon, he added.