Asian shares rose on Friday and were poised for a solid end to August. Meanwhile, the dollar faced its worst monthly performance in nine months, as expectations grew that the Federal Reserve would likely cut interest rates next month.
Later on Friday, the Fed will focus on its favored inflation indicator, the U.S. core personal consumption expenditures price index. Additionally, a reading on inflation in the euro zone will be a key event. These releases should provide more information about the outlook for interest rates in major nations.
The MSCI’s broadest index of Asia-Pacific stocks outside of Japan was expected to gain 2.3% for the month but ended the day up 0.77%.
U.S. stock futures continued Wall Street’s recent uptrend, with S&P futures up 0.2% and Nasdaq futures up 0.36%.
While FTSE futures increased by 0.4%, EUROSTOXX 50 futures saw a 0.22% decline.
The greatest economy in the world showed resilient growth. This growth overshadowed investors’ displeasure with Nvidia’s lackluster results, which caused global technology stocks to plummet.
The tech-heavy benchmark indices in Taiwan and South Korea, the KOSPI and Taiwan’s benchmark index, recovered from their losses on Thursday. They traded 0.7% and 0.44% higher, respectively.
Referring to the revision of GDP growth for the second quarter and the weekly statistics on jobless claims, “the U.S. data overnight undercut recession fears further,” stated Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
August was tumultuous for the financial markets. Early in the month, a series of less-than-expected U.S. economic reports prompted investors to sell riskier assets in pursuit of safety.
The Bank of Japan’s (BOJ) surprise rate hike led to the unwinding of yen-funded carry trades. This increased volatility, causing a major sell-off in global markets on August 5 that evoked memories of October 1987’s “Black Monday.”
Even while the Nikkei was still predicted to lose 1.6% for the month, the Japanese stock market has already recovered from its early-month fall. The last increase was 0.3% on Friday.
Core consumer prices in Tokyo increased for a fourth consecutive month. Data released on Friday confirmed this trend, reinforcing market expectations for more rate hikes by the BOJ in the coming months.
In other news, Chinese markets rose on Friday after nearly falling for seven months, with gains particularly notable in real estate firms.
Hong Kong’s Hang Seng Mainland Properties Index increased by 7%, while the CSI 300 Real Estate index of shares saw a spike of almost 8%.
Bloomberg News reported on Friday that China is considering allowing homeowners to refinance up to $5.4 trillion in mortgages. This move aims to reduce borrowing costs for millions of families and boost spending.
“There hasn’t been much news over the last few weeks on the property front, so people are excited… I’m still sceptical that this will really encourage a lot of home buyers,” said Steven Leung, executive director of institutional sales at brokerage UOB Kay Hian in Hong Kong.
EASING CYCLE
Investors primarily focus on the number and speed of rate reductions by the Fed this year. Their bets have solidified further after several Fed speakers indicated the possibility of dropping rates as early as next month.
With a roughly 32.5% possibility of an oversized 50 basis point (bps) decrease in September, markets have priced in approximately 100 basis points (bps) of easing by year’s end.
Due to this, the dollar has been weakening as it approaches Friday’s sharpest monthly drop since November.
The dollar was expected to lose almost 3% against the yen this month. The Japanese currency faced less pressure due to the possibility of narrowing interest rate differentials. As of right now, the greenback was trading at 144.79.
The euro fell 0.38% the previous day due to speculation about additional rate cuts by the European Central Bank (ECB) and lower-than-expected German inflation statistics. It then slipped another 0.02% to $1.1075.
According to Rob Carnell, regional head of research for Asia-Pacific at ING, “Germany is obviously quite a big weight within the euro zone, so if we get a downside surprise on Germany, it can feed through into the bigger numbers.”
“The ECB have been a bit sort of humming and harring about a September cut, and whether or not there’ll be more after that. It does make it look more likely.”
In the commodities market, the price of oil increased slightly. U.S. West Texas Intermediate crude futures rose 0.26% to $76.11 per barrel, and Brent crude futures increased 0.3% to $80.18 a barrel.
Spot gold was expected to gain 2.6% for the month due to the likelihood of an impending Fed easing cycle and a declining dollar. Instead, it declined 0.28% to $2,514.12 an ounce.
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