Asian investors struggled to buoy markets back up on Wednesday after Wall Street posted another healthy rise, buoyed by more upbeat earnings results that raised hopes for the earnings season.
Although sentiment on trading floors is more optimistic for now, analysts warned that the current rally could soon reverse as central banks continue raising interest rates to combat multi-decade high inflation.
Forex traders also watched the yen as it edged closer to 150 per dollar, with Japanese officials holding off on a second intervention in as many months but saying they were ready to act if necessary.
All three major New York indices posted consecutive gains as investors were encouraged by better-than-expected results from Goldman Sachs and Johnson & Johnson.
They followed better-than-expected reports from banking giants Citi, JP Morgan and Wells Fargo.
Retailers were given an additional boost by the news that Netflix added more than two million subscribers in July-September, easing concerns about the impact of rising borrowing costs on consumers.
“The earnings season offers investors an opportunity to focus more on the actual earnings power of American companies and less on the machinations of the backward economic data stream,” said Art Hogan, strategist at B. Riley.
“A better-than-feared earnings season could well be the catalyst the market needs to see a break in steady bottom.”
Still, Asian markets were mixed in early trade, with profit-takers weighing on Hong Kong after a healthy three-day lead, while there were also losses in Shanghai, Taipei, Manila and Jakarta.
Tokyo, Sydney, Seoul, Singapore and Wellington rose.
– ‘Volatility increased’ –
SPI Asset Management’s Stephen Innes warned that there were still many issues holding the cap for equities, including persistent inflation, weak sentiment, dovish central banks, the Ukraine war, China’s economic woes and “a non-stop drumbeat of recessionary rhetoric by noisy market participants “.
“The key to equity markets is (Federal Reserve) certainty, and that’s the crucial turn on the road before rates can get going again and Treasury volatility can come down,” he added.
“But for that to happen, the US data needs to turn around. Given the much hotter than expected inflation data, the Fed could do the opposite of what the market wants – increase volatility again.”
In FX markets, eyes now turn to Tokyo as the yen hovers just above 149 per dollar, with Finance Minister Shunichi Suzuki saying “we will respond appropriately to excessive moves”.
The unit is much weaker than the 145.90 level it touched last month before the authorities stepped in and analysts said they are likely to act before crossing 150.
“Of course, if the dollar-yen surges above the symbolic 150 level, the price action will accelerate, so they probably want to stop it before then or buy time,” said Yuji Saito of Credit Agricole CIB.
Crude oil rose on renewed supply concerns after falling Tuesday on bets that US President Joe Biden will order more barrels from emergency reserves to keep fuel prices subdued heading into the winter and midterm elections.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: up 0.7 percent to 27,353.87 (breakthrough)
Hong Kong – Hang Seng Index: down 0.8 percent at 16,781.79
Shanghai — Composite: down 0.4 percent at 3,067.39
Pound/dollar: rise to $1.1344 from $1.1332 on Tuesday
Dollar/Yen: DOWN at 149.17 yen from 149.21 yen
Euro/Dollar: DOWN at $0.9859 from $0.9862
Euro/pound: up to 86.92p from 87.01p
West Texas Intermediate: up 1.5 percent to $84.02 a barrel
North Sea Brent Crude: up 0.9 percent to $90.82 a barrel
New York – Dow: up 1.1 percent at 30,523.80 (close)
London – FTSE 100: up 0.2 percent at 6,936.74 (close)