Asian shares had their best day in weeks on Friday but were still on track for their worst quarterly performance in a year as worries over elevated interest rates dragged on sentiment, while the dollar wobbled and oil prices held their ground. MSCI's broadest index of Asia-Pacific shares outside Japan gained 1%, and were set for their biggest one-day percentage rise in four weeks. The index though remained close to the 10-month low it touched on Thursday and was set for a 4% drop in the July-September period, its worst quarterly performance since a 13.6% drop in the same period last year.
Asian shares sank to nine-month lows on Thursday, while the dollar was at a two-month peak as fears over China's sluggish economic recovery and concerns that the Federal Reserve may still raise interest rates rattled investors. The dark mood is set to continue in Europe with Eurostoxx 50 futures down 0.51%, German DAX futures down 0.55% and FTSE futures 0.35% lower. China stocks have been in the doldrums in the past few weeks as a series of economic data has laid bare the stuttering post-pandemic recovery, with investors so far unimpressed with moves from policymakers and clamouring for more stimulus.
Asian shares were on the defensive on Wednesday after data showed that China slipped into deflation in July, a negative sign for the world economic growth outlook although it could help dampen on inflationary forces globally. European futures were up across the board, with EUROSTOXX 50 futures rising 0.9% and FTSE futures 0.5%, after Italy said its new tax on banks would not amount to more than 0.1% of total assets, soothing nerves. In Asia, the MSCI's broadest index of Asia-Pacific shares outside Japan edged 0.2% higher, following a 1.2% tumble a day earlier.
Federal Reserve Chair Jerome Powell faces lawmakers in two days of testimony and is sure to be questioned on whether rateswill really rise again in July and peak in a 5.5%-5.75% range as projected. Markets have their doubts and currently imply around a 78% chance of a hike to 5.25-5.5% next month, with that likely being the end of the entire tightening cycle. "The focus is on whether the July meeting is truly "live" and if the Fed dot plot of two more hikes is a true base case depending on the data, or doom-mongering on inflation in an effort to ensure no premature easing in financial conditions," said Tapas Strickland, head of market economics at NAB.
The FTSE 100 Index (Financial Times Stock Exchange Index) comprises of the 100 most highly capitalised UK companies trading on the London Stock Exchange. The FTSE Group is a joint venture between the Financial Times and the London Stock Exchange.