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Asian Markets Extend Global Rally As Earnings Trump Virus Worries

Asian markets rallied Thursday as worries about the Delta variant were overshadowed by more strong earnings reports indicating companies were faring well as the global economy emerges from last year’s pandemic-induced collapse.

After a painful start to the week, investors were back in the saddle as Wall Street and Europe enjoyed back-to-back rallies thanks to optimism about the outlook, and despite surging infections that have forced some governments to reimpose lockdowns or other containment measures.

Confidence in the long-term recovery has been fortified by data showing that while fully vaccinated people have been infected with the new strain of Covid — such as in the United States and Britain — hospitalisation and death rates among them have remained relatively low, suggesting the drugs are working.

“The base case in the US is that the rise in Delta infections will not see restrictions tightened and although vaccination rates differ by state, 79.5 percent of the over-65s population is now fully vaccinated,” said National Australia Bank’s Tapas Strickland.

He added that while Delta concerns remained, “the consensus is that it does not pose an immediate risk to the recovery. At most, given effective vaccines, Delta pushes out the recovery by a quarter as countries seek to vaccinate a higher share of their respective populations before fully repealing virus restrictions”.

US traders cheered after forecast-beating earnings from Verizon and Coca-Cola, while United Airlines predicted profits down the line despite Covid curtailing travel.

Observers said about 85 percent of US firms that have reported so far have beaten expectations.

“Earnings estimates are quite remarkable, probably some of the best on record,” David Mazza, at Direxion, told Bloomberg Television. “Even through all this, we have central bank liquidity remaining very abundant, economic growth being robust.

“Certainly there are some question marks around how long that can continue, but for the time being momentum is at investors’ back.”

All three main indexes in New York enjoyed healthy gains.

And Asia extended the rally, with Hong Kong leading the way by climbing 1.8 percent, while Sydney, Singapore, Seoul, Mumbai, Jakarta and Manila also put on more than one percent. There were also gains in Shanghai, Wellington and Bangkok. Tokyo was closed for a holiday.

London dipped but Paris and Frankfurt both rose.

However, analysts warned the earnings reports had also shown that inflation remained an issue, with some saying price pressures were higher and longer-lasting than foreseen.

A long-running concern on trading floors is that an extended period of high price rises will force the Federal Reserve to tighten monetary policy earlier than thought, though the central bank has persistently denied it would act too soon.

“The key uncertainty for inflation though is whether these cost pressures are persistent and whether they are passed on to retail prices,” Strickland said.

Joe Biden looked to temper any worries Wednesday, telling a CNN town hall gathering “there will be near-term inflation” owing to the healthy economic recovery. But he added that most experts thought “it’s highly unlikely that it’s going to be long-term inflation that’s going to get out of hand”.

Oil prices dipped slightly after rallying more than four percent Wednesday, helping wipe out almost all Monday’s hefty losses, as demand optimism was boosted by news from the Energy Information Administration that stockpiles had fallen last week.