Selena Li

HONG KONG, (Reuters) – Asia stocks rose Wednesday on Wall Street. However, gains were limited by concerns that central bank tightening and a slowing global economy will halt growth and increase the risk of stagflation.

On Tuesday, the World Bank slashed its global forecast for growth by almost a third, to 2.9%, in warning that Russia’s invasion Ukraine had worsened the COVID-19 pandemic and many countries are now facing recession.

However, stocks in the United States rose to close higher for the second consecutive day. This buoyed Asia’s mood.[.N]

MSCI’s Asia-Pacific broadest index, which excludes Japan, rose 1.15%. It has recouped most of its losses from the previous session. Japan was only up 1%.

Australia’s stock index gained 0.72% after the Australian central bank raised its interest rates unexpectedly by most in 22-years. It also indicated that there would be more tightening.

India’s central bank will also raise rates in order to lower prices.

Markets expect the European Central Bank to meet on Thursday and lay the foundation for rate increases, or at the very least, start them.[ECBWATCH}

“I think the hikes coming from the central banks, or the frontloading is actually positive because it will allow us to kind of curb inflationary pressures,” said Trinh Nguyen, senior economist at Natixis in Hong Kong, adding markets could be correcting from Tuesday’s “overreaction”.

“But I wouldn’t say that it’s an reversal, unless a change of data will tell us otherwise,” Nguyen said.

U.S. Treasury Secretary Janet Yellen told senators on Tuesday that she expected inflation to remain high and the Biden administration would likely increase the 4.7% inflation forecast for this year in its budget proposal.

Chinese stocks were supported by hopes its economy is slowly getting back on track as strict COVID-19 lockdowns are relaxed. Hong Kong’s rose 1.22%, while China’s benchmark index CSI300 edged up by 0.47%.

“The bounce in risk sentiment is due to a more positive China tilt where the outlook is set to brighten up as Covid restrictions ease, and state-owned banks are obliged to increase lending again,” Stephen Innes, Managing Partner at SPI Asset Management said in a note.

In currencies, the yen hit a fresh 20-year low versus the dollar at 133 and slipped to a seven-year trough against the euro as traders awaited the ECB meeting, which is likely to leave Japan alone among its major peers in sticking to ultra easy monetary policy.

The U.S. Federal Reserve is expected to raise its benchmark funds rate by 50 basis points next week and again in July.

The U.S. benchmark 10-year yield was 2.992%, having edged down from a four week high of 3.064% on Tuesday after Target Corp (NYSE:) warned about excess inventory and said it would cut prices, offering some relief to those who think inflation may be peaking.

futures rose 0.11% to $120.72 a barrel and U.S. West Texas Intermediate futures gained 0.23% to $119.66.

XAU= was down 0.18% at $1,849.1 per ounce.