Asian shares advanced on Friday, following a rally on Wall Street as reports suggest that the economy and corporate profits may be doing better than feared. Japan’s benchmark Nikkei 225 rose nearly 0.1% in morning trading, and Australia’s S&P/ASX 200 added 0.4%. South Korea’s Kospi jumped 0.7%. Hong Kong’s Hang Seng slipped 0.1%.
“Better than Expected” Economic Data
Stocks climbed on Wall Street to their highest level in nearly eight weeks after the Commerce Department reported the U.S. economy expanded at a 2.9% annual pace in the last quarter, ending 2022 with momentum despite higher interest rates and widespread fears of a looming recession. This beat economists’ forecasts for a 2.3% expansion. The S&P 500 climbed 1.1%, the Dow climbed 0.6%, and the Nasdaq composite gained 1.8%.
Other reports also showed that orders for long-lasting goods from factories strengthened by more than expected in December, and fewer workers applied for jobless claims than expected last week. This strong data suggests that the economy can withstand last year’s blizzard of rate hikes by the Fed, plus at least one more expected next week, without crashing into a deep recession.
However, it’s important to note that while Thursday’s report on the economy may have been encouraging at first glance, it included some concerning signals of slowdown underneath. Megan Horneman, chief investment officer at Verdence Capital Advisors, said “the first half of this year is going to be tough,” pointing to recent weakness in both the manufacturing and services sectors of the economy.
In addition, Japan’s core consumer price index was up 4.3%, slightly higher than expected at 4.2%, and higher than the Bank of Japan’s target of 2%. Yeap Jun Rong, a market analyst at IG, said in a commentary that this seeks to challenge an eventual policy shift for the central bank, although the government’s energy subsidies next month could be tapped on to push back any changes for now.
Watching the Fed
A stronger-than-expected economy, particularly in the job market, could push the Fed to keep rates higher for longer to ensure inflation is crushed. The Fed has already been saying repeatedly that it plans to do just that, at least through the end of the year, though many investors don’t seem to be buying it. The yield on the 10-year Treasury, which helps set rates for mortgages and other loans crucial for the economy, rose to 3.49% from 3.45% late Wednesday. The two-year yield, which tends to more closely track expectations for Fed actions on interest rates, rose to 4.18% from 4.13%.
In conclusion, recent economic data suggests that the economy may be doing better than feared. However, this improvement is far from certain and investors should continue to monitor developments closely and make decisions based on their investment goals and risk tolerance.