ASIAN markets fluctuated today as traders weighed a bigger-than-expected drop in US retail sales and a Federal Reserve official’s support for further monetary tightening.

The mood was helped by forecast-beating earnings from US banking titans that eased concerns about the sector after last month’s turmoil that saw three regional lenders go under.

Investors built on last week’s broad rally that came on the back of data showing inflation falling quicker than estimated last month, which fanned hopes the Fed will bring its interest rate hiking campaign to an end soon.

Analysts said while the 1% drop in retail sales – double what was forecast – could give the US central bank more room to pause, it also revived worries that the world’s top economy could tip into recession.

However, despite figures pointing to prices falling, a survey by the University of Michigan on Friday showed consumers’ expectations about inflation rose this month to 4.6% annually, from 3.6% in March.

Meanwhile, Fed governor Christopher Waller dented hopes the bank will ease back on its tightening campaign soon, saying on Friday that rates should continue going up as inflation remained elevated.

“Because financial conditions have not significantly tightened, the labour market continues to be strong and quite tight, and inflation is far above target, so monetary policy needs to be tightened further,” he warned. 

“How much further will depend on incoming data on inflation, the real economy, and the extent of tightening credit conditions.”

Commentators said there is a broad belief the Fed will hike borrowing costs 25 basis points next month, though some say another could be in the pipeline for June.

Asian investors moved nervously at the start of the week.

Hong Kong, Shanghai, Sydney, Singapore and Taipei edged up though Tokyo, Seoul and Manila dipped.

‘Increasing volatility’

Frances Stacy, at Optimal Capital Advisors, warned: “I don’t think all of the rate hikes have worked their way through the system and it looks as though the Fed is going to continue to tighten.

“I don’t think we’re completely out of the woods yet, but that doesn’t mean the risk is going to happen overnight, but when something does hit, markets can gap down pretty dramatically.”

Marty Dropkin, of Fidelity International, added: “The recent banking fallout may have been contained but its effects have reverberated across global equity markets. The banking industry’s vulnerabilities are a sign of a tighter monetary policy environment, which will lead to even tighter financial conditions.

“We remain cautious on global equities and anticipate increasing volatility as top line pressures worsen in the coming months as labour and financing costs rise and other cyclical indicators become weaker.”

Financials in Asia were on the front foot after earnings reports from Wall Street giants JPMorgan Chase and Citibank beat forecasts.

The figures soothed worries about the state of the banking sector, which rattled markets last month after the collapse of the three US lenders and the takeover of Credit Suisse.

Traders are keenly awaiting the release of Chinese growth data today, which will provide the first snapshot of how the economy fared in the first full quarter without painful zero-Covid restrictions in place.

Analysts polled by AFP expect an average of 3.8% year-on-year growth in January-March.

Key figures around 9.30am:

Tokyo - Nikkei 225: DOWN 0.1% at 28,475.31 (break)

Hong Kong - Hang Seng Index: UP 0.2% at 20,483.60

Shanghai - Composite: UP 0.5% at 3,354.18

Euro/dollar: DOWN at US$1.0976 from US$1.0997 on Friday

Pound/dollar: DOWN at US$1.2398 from US$1.2416

Dollar/yen: UP at ¥133.85 from ¥133.75

Euro/pound: DOWN at 88.50 pence at 88.53 pence

West Texas Intermediate: FLAT at US$82.49 per barrel

Brent North Sea crude: FLAT at US$86.31 per barrel

New York - Dow: DOWN 0.4% at 33,886.47 (close)

London - FTSE 100: UP 0.4% at 7,871.91 (close). – AFP, April 17, 2023.