Asian stocks rally as fears of US recession recede

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Asian stocks followed Wall Street’s rally on Friday as fears of a US recession receded, helping to reverse a steep market sell-off earlier this month.

Japan’s benchmark Topix index rose over 2.5 per cent on Friday morning, while the tech-heavy Nikkei 225 surged almost 3 per cent. Shares in Australia, Hong Kong, Taiwan and South Korea also increased.

The moves picked up on momentum in US stocks on Thursday as retail sales data and strong results from Walmart boosted confidence and eased fears that the economy could fall into a recession. The S&P 500 closed 1.6 per cent higher, enough to wipe out the benchmark index’s August losses.

“It’s a combination of stronger US data, stabilisation of the yen and stable geopolitics,” said Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management.

“Underlying Japanese economic data is also looking a bit better, while Korea and Taiwan benefited from stronger US tech.”

Shares in Fujikura, a Japanese maker of optical connectors used in data centres and a beneficiary of the artificial intelligence trend, surged more than 10 per cent to an all-time high. 

Japanese tech bellwethers Renesas Electronics, Disco and Tokyo Electron were all sharply higher after the US Philadelphia Semiconductor Index, which tracks global semiconductor companies, rose 5 per cent on Thursday.

The yen has weakened to ¥148.8 against the dollar after strengthening significantly during the market sell-off earlier in August.

Forex traders in Tokyo said some hedge funds had started rebuilding short term positions in the so-called yen carry trade, in which traders take advantage of Japan’s low interest rates to borrow in yen and buy risky assets. The global sell-off at the beginning of the month was exacerbated by the unwinding of the yen carry trade.

“If there are carry trades coming back, they are not positioning on a six month view, but on a six-hour view,” said a forex analyst in Tokyo.

US retail sales increased 1 per cent in July, the Census Bureau reported on Thursday, the most in a year and a half and far above economists’ forecasts of a 0.3 per cent increase. Meanwhile Walmart raised its profit forecast and reported a 4.2 per cent year-on-year increase in same-store sales at its main US outlets.

The yield on the benchmark 10 year Treasury edged down 0.01 percentage points to 3.90 per cent on Friday, while the rate sensitive 2 year dropped 0.03 percentage points to 4.07. Bond yields fall as their prices rise.

The retail sales figures gave investors more confidence that the US economy would not fall into an imminent recession, said analysts.

“Retail sales were certainly better than expected though it is becoming clear that the US consumer, particularly at the lower income end of the spectrum, is becoming stretched,” said Brian Arcese, portfolio manager at Foord Asset Management.

“The downtick in inflation and the strong retail sales figures have certainly fuelled markets though we would remain cautious. We find better value in either defensive sectors such as utilities and/or regions outside of the US.”

Euro Stoxx 50 futures were up almost 0.3 per cent.

Additional reporting by Gregory Meyer, Harriet Clarfelt and Colby Smith in New York