Asian stocks inch higher, Nikkei rallies on soft inflation reading

  • Stock Market News
Asian stocks inch higher, Nikkei rallies on soft inflation reading
Credit: © Reuters.

By Ambar Warrick -- Most Asian stocks inched higher on Friday as markets digested more signals on U.S. monetary policy and positive Chinese economic data, while Japan’s Nikkei 225 index surged on a soft inflation reading from Tokyo.

The Nikkei 225 was the best performer for the day, up 1.5% as data showed inflation in Japan’s capital eased substantially from an over 40-year high in January. The reading, which usually heralds a similar trend in nationwide inflation, puts less pressure on the Bank of Japan to begin tightening policy - a scenario that is positive for Japanese stocks.

Friday’s gains also put the Nikkei on course for a 1.8% jump this week - its best weekly performance since mid-January.

Other Asian stocks were mildly positive, as optimism over a Chinese economic recovery somewhat offset growing fears of a more hawkish Federal Reserve.

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes traded in a flat-to-high range on Friday, but were set to rise more than 1% each this week following a swathe of positive economic data.

A private survey showed on Friday that China’s services sector expanded at a faster-than-expected pace in February. The reading followed government data that showed Chinese business activity grew at its fastest pace in over a decade, as a post-COVID economic recovery gained momentum.

Optimism over China spilled over into other bourses with exposure to the country, chiefly Hong Kong’s Hang Seng index. The index jumped 0.8% on Friday and was the best performer in Asia this week with a 2.9% bounce.

The Taiwan Weighted index was also set for a 0.8% weekly gain, while Australia's ASX 200 index rose 0.4% on Friday.

India's BSE Sensex 30 and Nifty 50 indexes rose more than 1% each, as heavyweight technology stocks tracked gains in their U.S. peers. But both indexes were set for a muted weekly performance.

But sentiment towards Asian markets was held back by a spike in U.S. Treasury yields this week, as continued signs of stubborn inflation and a strong jobs market drove up expectations that interest rates will remain higher for longer.

Overnight comments from Federal Reserve officials offered some clarity on where U.S. rates could peak this year. But officials also warned that any continued signs of stubborn inflation could keep rates higher for longer.

Rising interest rates had battered Asian markets through 2022, and have limited any major recovery in the region so far in 2023. Fears of a potential recession, triggered by pressure from higher rates, have also weighed on sentiment this year.

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