Asian equity markets exhibited mixed performance as investors balanced increasing expectations of Federal Reserve interest rate cuts with ongoing declines in technology stocks. While shares in Australia, Japan, and South Korea showed gains alongside rising futures for US equities, Chinese stocks in Hong Kong and the mainland demonstrated volatility. The Japanese yen also experienced erratic movements against the dollar as traders awaited the Bank of Japan’s upcoming meeting.
Taiwanese equities were particularly weak, plummeting up to 4.3% as trading resumed following disruptions from Typhoon Gaemi. This decline represented a catch-up to prior global tech stock declines, with Taiwan Semiconductor Manufacturing Co. suffering a significant 6.5% drop.
In US markets, the 10-year Treasury yield remained relatively stable in Asian trading, following a four-basis-point decrease on Thursday. This stability came as US government debt saw gains, driven by market reactions to signs of a resilient US economy and anticipated Federal Reserve rate cuts. The swaps market is currently predicting the first rate cut to occur in September.
Asian equities are poised for their first consecutive weekly losses since May, driven by a global rotation away from technology stocks—particularly those benefiting from the AI boom—and toward sectors that have lagged throughout the year.
HSBC Holdings Plc strategists, including Herald van der Linde, noted, “We’re still not calling a peak in Asian AI, but it feels as though we are getting closer. Momentum is shifting rapidly, and we are now even more convinced that the sector warrants close attention.”
China’s benchmark government bond yield fell to a new record low as the bond rally continued, challenging policymakers’ efforts to manage the movement. The CSI 300 Index is on track for its worst week since early February, with investors seeking refuge in safe-haven assets amidst a faltering economic recovery.
Bloomberg Intelligence’s Marvin Chen commented, “The policy measures seem ineffective for market sentiment until they translate into improved earnings. The upcoming earnings season in August might be a catalyst, but expectations are not high.”
The yen traded below 154 per dollar amid volatile trading and remained below its intra-day highs from the previous session. Inflation in Tokyo accelerated for the third consecutive month in July, strengthening expectations of a potential interest rate hike from the Bank of Japan next week.
Tim Baker, Head of Macro Research at Deutsche Bank AG, told Bloomberg Television, “To convincingly break below 150, we need the Fed to deliver or to see significantly more selling of foreign bonds by Japanese institutions.”
Despite the yen’s recent gains, its rally remains fragile. Only 30% of Bank of Japan watchers surveyed by Bloomberg predict a rate hike, though over 90% acknowledge it as a risk. Tony Sycamore, an analyst at IG Australia Pty, suggested that a move back towards 155.30 per dollar is “not out of the question” before the BOJ meeting, with uncertainty following that point.
In the US, the S&P 500 fell 0.5% on Thursday, and the Nasdaq 100 dropped 1.1% as major tech stocks, including Nvidia Corp. and Microsoft Corp., faced declines. Small-cap stocks showed stronger performance, reflecting investor optimism about potential interest rate cuts supporting broader economic growth.
The US economy grew faster than expected in the second quarter, with GDP increasing at a 2.8% annualized rate compared to 1.4% in the previous quarter. A key measure of underlying inflation rose 2.9%, easing from the first quarter but still exceeding forecasts. Chris Zaccarelli of Independent Advisor Alliance stated, “As long as the economy avoids a recession, this bull market will likely continue through 2024 and into 2025, so we would take advantage of any pullbacks along the way.”
In commodities, West Texas Intermediate crude extended its gains into a third day, while gold also saw a modest increase.
Market Movements:
Stocks:
1.S&P 500 futures rose 0.4% as of 1:08 p.m. Tokyo time
2.Nasdaq 100 futures rose 0.5%
3.Japan’s Topix rose 0.4%
4.Australia’s S&P/ASX 200 rose 0.9%
5.Hong Kong’s Hang Seng rose 0.2%
6.Shanghai Composite fell 0.2%
7.Euro Stoxx 50 futures rose 0.1%
Currencies:
1.Bloomberg Dollar Spot Index was little changed
2.Euro rose 0.1% to $1.0859
3.Japanese yen rose 0.1% to 153.76 per dollar
4.Offshore yuan fell 0.2% to 7.2526 per dollar
Cryptocurrencies:
1.Bitcoin rose 2.8% to $67,072.05
2.Ether rose 2.7% to $3,239.4
Bonds:
1.Yield on 10-year Treasuries was little changed at 4.24%
2.Australia’s 10-year yield declined two basis points to 4.29%
Commodities:
1.West Texas Intermediate crude rose 0.2% to $78.44 a barrel
2.Spot gold rose 0.3% to $2,372.63 an ounce
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