After experiencing a decline for most of the week, Asian markets rebounded on Friday following below-forecast US data. This injection of optimism stems from the belief that the Federal Reserve may cut interest rates later this year.
Investors eagerly await the release of the central bank’s preferred measure of inflation, as it could shed more light on the future of monetary policy.
Since January, expectations for the number of rate cuts this year have diminished due to strong economic data and cautionary statements from policymakers, who want to see concrete evidence of price stability before making any moves.
While many experts have advocated for keeping rates at current levels for an extended period, some have even proposed increasing rates.
In the meantime, the Japanese yen strengthened against the US dollar on the anticipation that the Bank of Japan will further tighten monetary policy. This follows a recent interest rate hike in March, the first in 17 years, prompted by a notable increase in inflation in Tokyo.
Investors in Asia, who have been struggling to revive a recent rally, received some positive news on Thursday. US data showed that the economy grew less than expected in the first quarter, personal consumption missed forecasts, and jobless claims exceeded estimates. These figures helped bring down Treasury yields after they reached a four-week high.
However, the focus now shifts to the personal consumption expenditures (PCE) index, which the Federal Reserve relies on heavily when making decisions about interest rates. The report comes after data showed that consumer prices eased last month, ending a streak of three consecutive above-forecast readings, and the job market showed signs of weakening.
“If the PCE comes in as expected, the data suggests that the Fed doesn’t need to raise rates and may even consider cutting them later in the year,” said Kyle Rodda, an analyst at Capital.com.
In addition, Friday will see the release of the latest eurozone consumer price index, which is a crucial data point ahead of the European Central Bank’s monetary policy meeting on June 6. It is widely anticipated that the ECB will lower rates during this meeting.
Despite a weak performance from most tech giants, Asian investors followed their own path after a week of selling. Hong Kong saw a rise of more than one percent, and there were also gains in Shanghai, Tokyo, Sydney, Seoul, Singapore, Taipei, Wellington, Manila, and Jakarta. The news of China’s factory activity contracting in May for the first time in three months had little impact, dampening optimism about the economy’s recovery. However, Mark Mobius, co-founder of Mobius Capital Partners, expressed bullishness towards Chinese equities in recent weeks due to the government’s introduction of measures to support the struggling property market. In the forex market, the yen strengthened against the US dollar following Tokyo’s inflation figures, which are considered a gauge for Japan and led to speculation of another rate hike.
“Saxo’s Charu Chanana noted that the Bank of Japan has been indicating further tightening, and the latest inflation data provides room for the central bank to take additional measures to normalize policy and support the yen.
Here are the key figures as of 0230 GMT:
- Tokyo – Nikkei 225: Up 0.2 percent at 38,119.96 (break)
- Hong Kong – Hang Seng Index: Up 1.3 percent at 18,458.04
- Shanghai – Composite: Up 0.3 percent at 3,100.63
- Dollar/yen: Down at 156.69 from 156.82 yen on Thursday
- Pound/dollar: Down at $1.2722 from $1.2733
- Euro/dollar: Down at $1.0821 from $1.0834
- Euro/pound: Down at 85.05 from 85.07 pence
- West Texas Intermediate: Down 0.4 at $77.61 per barrel
- Brent North Sea Crude: Down 0.3 percent at $81.64 per barrel
- New York – Dow: Down 0.9 percent at 38,111.48 (close)
- London – FTSE 100: Up 0.6 percent at 8,235.15 (close)”