Asian stocks rebound on eased inflation concerns following key US data

Asian markets are gaining momentum as the Federal Reserve’s preferred inflation gauge revealed slower-than-expected growth, signaling potential rate cuts ahead. This shift has energized investor sentiment, halting a six-day slide in the MSCI Asia Pacific Index and sparking gains across key markets in Australia, Japan, and South Korea.

The MSCI Asia Pacific Index saw a 0.5% increase in early trading, with Hong Kong futures also pointing to gains. This positive movement comes after the S&P 500 surged 1.1% on Friday, buoyed by data showing personal consumption expenditures at their slowest pace since May. These developments have provided much-needed relief to global markets, which recently faced their sharpest weekly decline in over three months due to recalibrated Federal Reserve rate projections for 2025.

Friday’s subdued inflation figures likely reassured both policymakers and investors that the US economy is showing signs of cooling while maintaining resilience. Analysts, such as Shane Oliver from AMP Ltd., emphasize that the data could mark a turning point, suggesting the Federal Reserve may have overestimated inflationary pressures. Despite the upbeat outlook, Oliver cautions that the path ahead may be marked by volatility and constrained growth.

Bond markets also reflected the easing sentiment. Australia’s 10-year yield dropped six basis points, mirroring a rally in US Treasuries. Meanwhile, the dollar stabilized after a 0.5% slide on Friday, with President Joe Biden’s signing of funding legislation averting a government shutdown, further alleviating market pressures.

However, challenges remain. Emerging Asian markets are under strain amid speculation about upcoming US policies, notably global tariffs and their potential impact on Chinese assets. Asia-Pacific currencies continue to face headwinds, with some strategists warning of further volatility as monetary easing bets rise in China and macroeconomic growth softens, particularly in South Korea.

Commodity markets showed mixed trends, with oil prices steadying after last week’s decline as traders assessed geopolitical developments. Looking ahead, market participants are eyeing key economic data, including Reserve Bank of Australia meeting minutes and inflation reports from Japan, Singapore, and the UK, which could shape near-term trading strategies.

The gains across Asian markets signal a cautiously optimistic outlook, underscored by the hope that inflation pressures are easing, paving the way for more accommodative monetary policies.

Fidelity Asian Values Plc (LON:FAS) provides shareholders with a differentiated equity exposure to Asian Markets. Asia is the world’s fastest-growing economic region and the trust looks to capitalise on this by finding good businesses, run by good people and buying them at a good price.

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