Friday, 2 December, 2022

Markets mixed as traders struggle to keep rally's momentum

HONG KONG: Investors battled to push markets higher again Wednesday following another healthy run-up on Wall Street boosted by more positive earnings results that raised hopes for the reporting season.

However, while there is a more upbeat mood on trading floors for now, analysts warned that the current rally could soon turn as central banks press on with interest rate hikes aimed at fighting multi-decade-high inflation.

In a sign of the uphill struggle in the battle against prices, the closely watched UK consumer price index jumped back above 10 percent last month owing to soaring food costs, reports AFP.

Forex traders were also keeping tabs on the yen as it edges closer to 150 per dollar, with Japanese officials holding off a second intervention in as many months but saying they are ready to act when necessary.

All three main indexes in New York enjoyed back-to-back gains as investors were heartened by forecast-beating results from Goldman Sachs and Johnson & Johnson.

They came on the heels of better-than-expected reports from banking giants Citi, JP Morgan and Wells Fargo.

Traders were given an extra boost by news that Netflix gained more than two million subscribers in July-September, easing worries about the impact of rising borrowing costs on consumers.

"Earnings season offers investors the opportunity to focus more on the actual earnings power of corporate America, and less on the machinations of the backward-looking economic data stream," Art Hogan, a strategist at B. Riley, said.

"A better-than-feared earnings season may well be the catalyst the market needs to see a break in the steady grind lower."

Still, Asian markets were mixed, with Hong Kong tanking as investors were left unimpressed with city leader John Lee's first policy speech, which laid out plans to boost the economy but also saw a vow not to let up on a security crackdown.

There were also losses in Shanghai, Seoul, Taipei and Bangkok, though Tokyo, Sydney, Singapore, Wellington, Mumbai, Manila and Jakarta rose.

London edged down after the inflation reading and ahead of a keenly awaited Prime Minister's Questions in parliament, the first since Liz Truss's new finance minister tore up her controversial mini-budget that hammered markets last month.

The pound fell back below $1.13 as European trade began, having rallied in the previous two days on the government U-turn.

Paris and Frankfurt also dipped, while US futures rose.

SPI Asset Management's Stephen Innes warned there were still plenty of issues keeping a cap on equities including sticky inflation, weak sentiment, hawkish central banks, the Ukraine war, China's economic woes and "a non-stop drum beat of recessionary rhetoric from vocal market participants".

"The key to equity markets is (Federal Reserve) certainty, and that is the crucial turn on the road before the rates markets can settle back into a groove and Treasury volatility can decline," he added.

"But for that to happen, the US data needs to roll over. Given the much-hotter-than-expected inflation data, the Fed may do the opposite of what the market wants -- turning volatility up again."

On currency markets, eyes were on Tokyo as the yen hovers just below 149.50 per dollar, with finance minister Shunichi Suzuki saying "we'll respond appropriately against excessive moves".

The unit is much weaker than the 145.90 level it touched last month before authorities stepped in, and analysts said they would likely act before it passes 150.

The yen has plunged more than 20 percent against the dollar as the Bank of Japan refuses to lift interest rates -- citing a need to boost the economy -- even as the Fed announces a series of bumper increases.

"If dollar-yen rises past the symbolic 150 level, price action will naturally accelerate, so they probably want to halt it before then or buy time," said Yuji Saito of Credit Agricole CIB.

Crude rose on renewed supply worries, having slumped Tuesday on bets that President Joe Biden would order the release of more barrels from US emergency reserves in order to keep fuel prices subdued heading into the winter and mid-term elections.