TOKYO SINGAPORE Asian stocks went up in a choppy session on Thursday due to nervous tension over Nancy Pelosi's visit to Taiwan and as investors took advantage of robust U.S. data and earnings.
Hong Kong tech shares lost some of the losses suffered as a result of Sino-U., leading the attempted rebound with a gain of 2.8 per cent. S. frictions flared this week over a visit by House Speaker Pelosi to Taipei, which angered China.
The Hang Seng rose by 1.7 per cent. Japan's Nikkei rose 0.7 per cent. MSCI's broadest index of Asia-Pacific shares increased by 0.5 per cent and crude prices fell after news of slackening demand and higher supply.
The S&P 500 futures futures were down 0.1 per cent in the Asian afternoon. European futures rose 0.3 per cent and FTSE futures were flat, as expectations for the steepest Bank of England rate hike in 27 years loomed over the market mood.
A 50 basis point bps hike is all but priced in, so sterling may struggle in the absence of a hawkish surprise, especially as the British outlook is looking weak, while the U.S. data has offered some upside surprises.
An ISM survey showed that the U.S. services industry unexpectedly picked up in July, leading to a selloff in bonds and rallies for U.S. stocks and the dollar, with the Nasdaq up 2.5 per cent to a three-month high.
The rally had a goldilocks-like feel, said Brian Daingerfield, head of the G 10 foreign exchange strategy at NatWest Markets.
The growth signal that was delivered by the ISM reading seemed to be welcomed by wider risk markets while the tighter financial conditions support the data support. Fed officials have provided a hawkish chorus this week, battering the short end of the yield curve. The two-year Treasury yields were at 3.0815 per cent in Asia and are up 18 bps this week. The yields for the 10-year year were 2.7191 per cent.
The uncertainty surrounding growth and rates has caused currency markets to hit an air pocket. The dollar has stopped a decline that began in the middle of July, with support from hike expectations and heightened political tension.
The Fed funds futures are priced for rate cuts to be under way by the middle of next year and the inversion of the U.S. yield curve, with 10 year yields below two-year yields, suggesting investors think that the hiking path will hurt growth.
David Ratliff, head of banking and capital markets for Asia Pacific at Wells Fargo in Hong Kong, said the market is going to be choppy. People are starting to read through the current round and pace of Fed tightening. The dollar index was steady at 106.390. A euro weighed by Europe's energy crisis bought $1.0165. The Australian dollar gained 0.2 per cent from a record Australian trade surplus and rose 0.2 per cent to $0.6968.
Sabre rattling in the Taiwan Strait took a little bit of a back seat in the Asia session, but bumpy trade in Chinese markets was evidenced by investors that there were plenty of risks remaining.
After Pelosi visited, China launched unprecedented military drills in six areas that ring Taiwan.
Spot gold rose by 0.4 per cent to $1,771 an ounce.
Earnings from Alibaba Credit Agricole, Lufthansa LHAG.DE and Bayer are due later in the day.