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Investors are weighing the impact of hawkish central banks on Asian stocks, which are rising

Image: Reuters Berita 24 English - Stocks in Asia gained on Wednesday, boosted by a Wall Street surge, but gains were limited by concerns t...

Image: Reuters

Berita 24 English - Stocks in Asia gained on Wednesday, boosted by a Wall Street surge, but gains were limited by concerns that aggressive central bank policy tightening could strangle global economy and increase the risk of stagflation.

The World Bank lowered its global growth prediction for 2022 by over a third, to 2.9 percent, saying that Russia's invasion of Ukraine has exacerbated the effects of the COVID-19 epidemic, and many countries are now in recession.

Nonetheless, U.S. equities rose to end the day higher for the second day in a row, boosting Asian sentiment.

While Japan's Nikkei 225 index was up 1%, MSCI's broadest index of Asia-Pacific equities outside Japan jumped 1.15 percent, recouping most of its losses from the previous session.

The S&P/ASX 200 index in Australia jumped 0.72 percent on Wednesday, recouping half of its Tuesday loss after the central bank lifted interest rates for the first time in 22 years and hinted at more tightening to come.

In a move to cool prices, India's central bank is expected to boost rates later in the day (0430 GMT), with future hikes priced in.

The European Central Bank meets on Thursday, and markets expect it to lay the basis for quick rate hikes, if not start with a minor raise.

"I think the central bank hikes, or frontloading, are actually helpful because it would allow us to kind of moderate inflationary pressures," said Trinh Nguyen, senior economist at Natixis in Hong Kong, adding that markets may be correcting from Tuesday's "overreaction."

"But I wouldn't say it's a reversal," Nguyen said, "until a change in statistics tells us otherwise."

On Tuesday, US Treasury Secretary Janet Yellen told senators that she expected inflation to stay high, and that the Biden administration's 4.7 percent inflation projection for this year will likely be increased in its budget proposal.

Chinese stocks have been boosted by anticipation that the country's economy will gradually recover as COVID-19 restrictions are eased. The Hang Seng index in Hong Kong increased by 1.22 percent, while China's benchmark index, the CSI300, increased by 0.47 percent.

In a note, Stephen Innes, Managing Partner at SPI Asset Management, stated, "The rise in risk sentiment is attributable to a more bullish China tilt, where the outlook is anticipated to brighten as Covid restrictions ease, and state-owned banks are forced to increase lending again."

The yen fell to a seven-year low against the euro and a new 20-year low against the dollar as traders awaited the ECB meeting, which is expected to leave Japan alone among its major countries in adhering to ultra-easy monetary policy.

The Federal Reserve of the United States is projected to raise its benchmark funds rate by 50 basis points next week and by another 50 basis points in July.

The benchmark 10-year yield in the United States was 2.992 percent, down from a four-week high of 3.064 percent on Tuesday after Target Corp warned of excess inventory and announced it will slash prices, providing some solace to investors who believe inflation is nearing its peak.

Brent futures increased by 0.11 percent to $120.72 per barrel, while US West Texas Intermediate CLc1 futures increased by 0.23 percent to $119.66 per barrel.

At $1,849.1 per ounce, spot gold XAU= was down 0.18 percent.

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