Asian stock markets experienced a significant rally today as investors returned to risk assets, buoyed by optimistic expectations regarding the US economy’s resilience. This optimism has led to the yen heading for its worst weekly performance since May.
Nearly all major stock indices in Asia posted gains, with the regional benchmark poised for its strongest weekly performance in over a year. Japanese stocks, in particular, have been prominent gainers, benefiting from a weaker yen that has improved the profitability of exporters. The yen fell 1.3% against the dollar on Thursday, trading around 149 to the dollar. This decline has eased concerns about a potential massive unwinding of carry trades. US equity futures also edged higher.
Recent US economic data, including reports on inflation, jobless claims, and retail sales, have reassured investors that the US economy is on track for a “Goldilocks” scenario—where inflation remains under control without stifling economic growth. Global stock indices have largely recovered from the previous week’s losses, which had been driven by fears that the Federal Reserve might not cut rates swiftly enough to avert a recession.
Hebe Chen, an analyst at IG Markets Ltd., commented, “Asian equities are experiencing a strong performance today, driven by a renewed sense of economic equilibrium following recent economic data. Japanese stocks, in particular, continue their impressive recovery with no signs of slowing down.”
In Asia, Treasury yields remained stable after a drop on Thursday. The positive economic data from the US led traders to reduce expectations for a significant rate cut in September, now pricing in less than a 30-basis point reduction next month and a total of 92 basis points of cuts for the rest of 2024.
As concerns over the US economy have diminished, equities have rebounded from last week’s market turbulence. The S&P 500 extended its six-day rally to 6.6% on Thursday, marking its best performance in such a period since November 2022. Walmart Inc., a key growth indicator, saw a significant rise on the back of a strong outlook.
The VIX, Wall Street’s volatility index, fell to around 15 after spiking to 65 last week. This decline suggests that trend-following quantitative funds may soon re-enter the market, potentially providing additional support to stocks.
In Japan, stocks are on track for their largest weekly gain since April 2020, driven by the continued weakness of the yen. This weakness might attract hedge funds back to the carry trade, which had recently been disrupted.
Hiroshi Namioka, chief strategist at T&D Asset Management Co., stated, “Exporters are benefiting from a weak yen and robust US economic data. Stocks that experienced significant sell-offs over the past month are being bought back as market volatility subsides.”
In other parts of Asia, the head of China’s central bank has pledged additional measures to support economic recovery but emphasized that drastic measures are not on the table. In Australia, sovereign bond yields climbed on Friday, tracking US Treasury movements, and the Reserve Bank of Australia indicated that monetary policy easing remains some way off.
Alibaba Group Holding Ltd. saw gains as optimism about tech stocks outweighed concerns about its earnings, while JD.com Inc. posted its largest gain since March following positive net profit results.
US officials continue to aim for a “soft landing,” where higher rates curb inflation without causing an economic downturn. Fed Bank of St. Louis President Alberto Musalem indicated that rate cuts may be imminent, while his Atlanta counterpart Raphael Bostic expressed openness to a September reduction.
David Russell at TradeStation noted, “A soft landing is increasingly looking like a reality rather than a hope. Recent market volatility appears to have been more about seasonal factors and currency market movements rather than a genuine growth scare.”
In commodities, gold is set for a modest weekly gain, while oil prices edged lower as the market balanced strong US economic data and potential geopolitical tensions with a lackluster demand outlook from China.
Key Events This Week:
1.Japan tertiary index (Friday)
2.US housing starts and University of Michigan consumer sentiment (Friday)
3.Fed’s Austan Goolsbee speaks (Friday)
4.Canada housing starts (Friday)
Market Movements:
Stocks:
1.S&P 500 futures +0.1%
2.Nikkei 225 futures +3.1%
3.Japan’s Topix +2.4%
4.Australia’s S&P/ASX 200 +1%
5.Hong Kong’s Hang Seng +1.7%
6.Shanghai Composite unchanged
7.Euro Stoxx 50 futures +0.2%
8.Nasdaq 100 futures +0.2%
Currencies:
1.Bloomberg Dollar Spot Index -0.1%
2.Euro unchanged at $1.0982
3.Japanese yen +0.3% to 148.88 per dollar
4.Offshore yuan -0.2% to 7.1752 per dollar
5.Australian dollar +0.2% to $0.6626
Cryptocurrencies:
1.Bitcoin +2.8% to $58,255.51
2.Ether +1.8% to $2,596.27
Bonds:
1.10-year Treasuries yield -1 basis point to 3.90%
2.Japan’s 10-year yield +4 basis points to 0.870%
3.Australia’s 10-year yield +6 basis points to 3.93%
Commodities:
1.West Texas Intermediate crude -0.5% to $77.78 per barrel
2.Spot gold -0.2% to $2,453.05 per ounce
Related topic:
What Time Do Stock Futures Open On Sunday?