Asian stock markets experienced a significant rally on Thursday, buoyed by cooling U.S. inflation data and optimism from Wall Street’s record highs, while bond yields fell as investors assessed the Federal Reserve’s cautious stance on interest rate cuts.
The MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.9%, with notable gains in Taiwan, where stocks jumped 1.7%, and Hong Kong’s Hang Seng, which rose nearly 1%. These positive movements were underpinned by strong performances in the U.S. markets, where the S&P 500 and the tech-heavy Nasdaq closed at record highs overnight. U.S. futures pointed to further gains, with S&P futures up 0.2% and Nasdaq futures adding 0.6%.
In Japan, the Nikkei managed a modest rise of 0.1%, although an initial tech-led advance fizzled out. The yen inched down against the dollar as the Bank of Japan (BOJ) commenced its two-day policy meeting. Investors are keenly watching the BOJ, with reports suggesting a potential reduction in monthly bond purchases and even the possibility of a rate hike in July. Despite these speculations, market experts like Daniel Hurley from T. Rowe Price expect the BOJ to remain accommodative and dovish, which would likely keep the yen relatively weak.
Wall Street had rallied strongly on Wednesday after a closely watched Consumer Price Index (CPI) report showed core prices growing at their slowest annual pace in over three years. However, investors were later unsettled as Federal Reserve officials adjusted their projections, trimming the expected interest rate reductions this year to a single quarter-point cut. Fed Chair Jerome Powell acknowledged that while inflation has eased significantly, it remains too high. He also noted that the decision on the rate path was a “close call” for many policymakers.
Nick Ferres, chief investment officer at Vantage Point in Singapore, commented, “These projections remain hostage to the incoming data, and on that front, the May CPI was a genuine dovish surprise. What really matters for markets is that today’s prevailing bias on the ‘soft-landing’ narrative has probably peaked. That might contribute to a peak in equity prices sometime over the northern hemisphere summer.”
U.S. Treasury yields reflected the mixed sentiment. The 10-year Treasury yield was little changed at 4.31% on Thursday after starting the previous day 10 basis points higher. It dipped as low as 4.25% following the CPI surprise, marking its lowest level since April 1. Japan’s government bond yields also fell, dropping as much as 3 basis points to 0.955% for the first time since May 17.
In currency markets, the yen underperformed against the dollar, slipping 0.14% to 156.92 per dollar. Meanwhile, the euro held steady at $1.0808 after a solid gain of 0.64% overnight. The dollar index, which measures the U.S. currency against six major peers, added 0.07% to 104.76, recovering slightly after a 0.54% slide on Wednesday.
Commodities saw mixed movements. Gold prices eased by 0.3% to $2,315.55 per ounce. In the oil market, prices fell slightly due to a larger-than-expected rise in U.S. crude stockpiles. Brent crude futures lost 14 cents, or 0.17%, to $82.46 a barrel, and U.S. West Texas Intermediate (WTI) crude futures declined 16 cents, or 0.2%, to $78.34. Both benchmarks had gained about 0.8% in the previous session.
As markets continue to digest these developments, the interplay between inflation data, central bank policies, and geopolitical events will remain crucial in shaping the economic landscape. Investors are advised to stay vigilant and adapt their strategies to the evolving financial environment.
