Asian markets gain as Japan notches its highest trade deficit ever

Japan’s benchmark Nikkei 225
NIK,
+0.74%
gained 0.7% in morning trading. Australia’s S&P/ASX 200
XJO,
+0.81%
rose 0.8% and South Korea’s Kospi
180721,
+1.82%
jumped 1.8%. Hong Kong’s Hang Seng
HSI,
+2.25%
surged 2.3%, while the Shanghai Composite
SHCOMP,
+0.77%
added 0.8%. Stocks slipped in Indonesia
JAKIDX,
-0.17%
but advanced in Singapore
STI,
+1.16%,
Taiwan
Y9999,
+0.91%
and Malaysia
FBMKLCI,
+0.16%.

“Asian equities were higher on Thursday after a positive day on Wall Street, where price action was driven by strong retail sales in the US, which signaled a hot economy at the start of the year,” Anderson Alves at ActivTrades said in a report.

Japanese machinery orders for December returned to growth after contracting in the previous month.

The total value of machinery orders received by 280 manufacturers in Japan, a key indicator for private sector investment, rose a seasonally adjusted 6.5% in December from the month before.

On Wall Street, the S&P 500
SPX,
+0.28%
rose 0.3% to 4,417.60 after swinging from early losses to gains through the day. The Dow Jones Industrial Average
DJIA,
+0.11%
added 0.1% to 34,128.05, while the Nasdaq composite
COMP,
+0.92%
rose a more forceful 0.9% to 12,070.59.

Sales at U.S. retailers jumped by more last month than expected, even as shoppers contended with higher interest rates on credit cards and other loans. The surprising strength offers hope that the most important part of the U.S. economy, consumer spending, will remain resilient despite worries about a possible recession. It’s the latest piece of data to show the economy remains stronger than feared.

At the same time, though, the strong demand could add more fuel to inflation, leading the Federal Reserve to keep interest rates high. A report earlier this week showed prices are cooling less than expected.

“Will it lead to that traditional recession or a shallow recession, or will we power through it and have more strong growth with still-high rates?” asked Tom Hainlin, national investment strategist at U.S. Bank Wealth Management.”

“It seems like both consumers and corporate America came into this in pretty good shape and so far are holding out OK,” he said.

After Tuesday’s data on inflation was slightly hotter than expected, economists at Deutsche Bank raised their forecast for how high the Fed will take its key overnight interest rate. They now see it ultimately rising to 5.6%, up from their prior forecast of 5.1%.

The Fed has already pulled its overnight rate all the way to a range of 4.50% to 4.75%, up from virtually zero a year ago.

The Deutsche Bank economists said they still expect a recession, but that the near-term strength in the economy could push its timing into the last three months of the year, later than they earlier thought.

Many other traders have also been raising their forecasts for how high the Fed will ultimately take interest rates. They’ve also sharply reduced bets for the Fed to cut rates late this year.

Even still, stocks are hanging onto healthy gains for the year despite recent rockiness. The S&P 500 is up 8% as strong data build hope that the economy may be able to avoid a recession. Or, if one hits, perhaps it may be only a short and shallow one.

The next big milestone for the market will likely be the Fed’s meeting in late March, when policy makers will give their latest forecasts for where interest rates will be at the end of the year, Hainlin said. That could lead to choppy trading in markets until then, as investors try to guess which way it will go.

In energy trading, benchmark U.S. crude
CLH23,
+0.62%
added 43 cents to $79.02 a barrel in electronic trading on the New York Mercantile Exchange. It fell 47 cents to $78.59 on Wednesday. Brent crude
BRNJ23,
+0.50%,
the international pricing standard, rose 38 cents to $85.76 a barrel.

In currency trading, the U.S. dollar
USDJPY,
-0.29%
fell to 133.76 Japanese yen from 134.16 yen.