Asian shares rise, eyeing Ukraine, inflation, energy costs

Asian shares were mostly higher Tuesday as investors eyed the war in Ukraine, inflationary risks and surging energy prices.

Benchmarks rose in morning trading in Japan, South Korea, Australia and Hong Kong, but edged lower in Shanghai.

The Russian war on Ukraine and Western sanctions on Russia are adding to worries over energy supplies for Europe, surging prices and progress toward economic recoveries from the pandemic.

“With no progress on peace talks, reports are circulating that the EU is setting the table for a Russian oil embargo. Higher energy prices will hugely harm the EU economy,” said Stephen Innes, managing partner at SPI Asset Management.

Wall Street end lower

Shares ended modestly lower on Wall Street after bouncing around for much of the day and bond yields rose sharply after Federal Reserve Chair Jerome Powell said the central bank was prepared to move more aggressively if need be to contain inflation.

The yield on the 10-year Treasury jumped to 2.30% from 2.14% late Friday.

Japan's benchmark Nikkei 225 surged 1.5% to 27,215.65 in morning trading. Australia's S&P/ASX 200 gained 1.1% to 7,357.90. South Korea's Kospi edged 0.5% higher to 2,698.49. Hong Kong's Hang Seng rose 0.5% to 21,319.19, while the Shanghai Composite fell 0.1% to 3,249.54.

On Wall Street, the S&P 500 fell 1.94 points to 4,461.18, snapping a four-day winning streak for the benchmark index. The Dow dropped 0.6% to 34,552.99 and the Nasdaq slid 0.4% to 13,838.46.

Smaller company stocks fared worse than the broader market. The Russell 2000 index lost 1% to 2,065.94.

Fed and rate hike

In remarks at the National Association of Business Economists, Powell said the Fed would raise its benchmark short-term interest rate by a half-point at multiple Fed meetings, if necessary, to slow inflation. The Fed hasn't raised its benchmark rate by a half-point since May 2000.

On Wednesday, the central bank announced a quarter-point rate hike, its first interest rate increase since 2018. Stocks rallied after the announcement and went on to have their best week in more than a year. The central bank is expected to raise rates several more times this year.

Before Russia's invasion of Ukraine added a new wave of global economic uncertainty to the mix, some Fed officials had said the central bank would do better to begin raising rates by a half-point in March.

Given rising risks of a recession, Clifford Bennett, chief economist at ACY Securities, said he believes the Fed should act cautiously.

“Europe will likely enter recession and with the world experiencing ongoing high energy and food prices, the poor will be disproportionately impacted. And raising interest rates will have zero impact on this war-driven inflation wave,” he said.

Retailers and other companies that rely on consumer spending, and communication and technology stocks, were the biggest drag on the S&P 500 Monday. Home Depot slid 3.3%, Facebook parent, Meta Platforms, fell 2.3%, and Microsoft fell 0.4%.

In energy trading, benchmark US crude added $2.68 to $112.65 a barrel. Overnight, energy stocks made solid gains as oil prices gained ground. US benchmark crude oil jumped 7.1% to settle at $109.97 per barrel on Monday. Brent, the international standard, surged $2.92 to $118.54.

This week, there isn't much US economic data to give investors a better sense of how companies and investors are dealing with rising inflation.

The Fed's move to raise interest rates had been expected for months as supply chain.

Russia's invasion of Ukraine has added to concerns that inflation could worsen by pushing energy and commodity prices higher. Oil prices are up more than 45% this year and prices for wheat and corn have also surged.

Outside of those broader concerns, several stocks made big moves on company-specific news. Alleghany, a reinsurance company, soared about 25% after agreeing to be bought by Warren Buffett's Berkshire Hathaway. Media ratings agency Nielsen slid 6.9% after rejecting an acquisition offer.

Boeing fell 3.6% after a 737-800 aircraft operated by China Eastern Airlines crashed in China with 132 people on board. Reports Tuesday said there were no survivors.

Currencies

In currency trading, the US dollar surged to six-year highs against the Japanese yen, at one point hitting 120 Japanese yen. It was later trading at 119.90 yen, up from 119.47 yen. The euro cost $1.1002, down from $1.1016.

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