On Thursday, Asian stocks soared to unprecedented levels, while sterling climbed to a four-month high driven by robust growth figures. Investors eagerly awaited U.S. data anticipated to indicate easing inflation, potentially setting the stage for rate cuts as early as September.
U.S. shares reached record highs on Wednesday, with futures remaining flat during the Asian trading session. Bonds and the dollar held steady, keeping the yen weak at approximately 161 per dollar, near its lowest in decades. In Japan, the Nikkei surged by 1% to a record high of 42,426. Meanwhile, MSCI’s broad index of Asia-Pacific shares outside Japan rose by 1.2% to a two-year high. Taiwan stocks also hit a record peak, and Australia’s ASX 200 closed just shy of its all-time high.
Shane Oliver, chief economist and head of investment strategy at AMP in Sydney, stated that the primary driver is the prospect of interest rate cuts. A favourable inflation reading would address one of U.S. Federal Reserve Chair Jerome Powell’s key criteria for rate reductions. Powell informed lawmakers that additional positive data would strengthen the case for cutting interest rates. Current futures pricing suggests a 75% chance of a rate cut in September. Economists predict that the annual U.S. Consumer Price Index (CPI) slowed to 3.1% in June, down from 3.3% in May.
The Bank of Korea maintained its interest rates but omitted previous warnings about inflation, with Governor Rhee Chang-yong indicating it was time to prepare for potential rate cuts. Similarly, a shift in the tone from the Reserve Bank of New Zealand on Wednesday resulted in a significant re-pricing of rate-cut expectations, leading to a drop in the benchmark two-year swap rate and a decline in the currency.
Malaysia is anticipated to keep its rates steady, with the U.S. earnings season set to kick off with results from Delta Air Lines and consumer bellwether PepsiCo, followed by bank results on Friday.
China’s stocks echoed the positive market momentum, although a series of disappointing data and tariff discussions in major export markets have made rallies difficult to sustain. China’s GDP print is expected on Monday. The Hang Seng in Hong Kong rose by 1%, while on the mainland, the blue-chip CSI300 climbed by 1.1%, although it remained close to Tuesday’s four-and-a-half-month low. The yuan strengthened from an almost eight-month low to 7.2701 per dollar.
Sterling was strong following the Bank of England’s chief economist’s less definitive stance on the timing of rate cuts, reaching a four-month high of $1.2866 after better-than-expected British GDP data. In other currency movements, the euro inched higher to $1.0835, and the yen slipped to 161.7 per dollar. Japan’s core machinery orders unexpectedly fell for the second consecutive month, challenging expectations for interest rate hikes. The New Zealand dollar found support at its 200-day moving average, trading at $0.6095, while the Australian dollar rose by 0.2% to a six-month high of $0.6763.
In the bond market, U.S. two-year yields held at 4.62%, and benchmark 10-year yields remained at 4.29%. In commodity trading, oil prices increased, driven by strong U.S. gasoline demand, with Brent futures rising by 71 cents to $85.79 a barrel, and U.S. crude climbing by 67 cents to $82.77 a barrel. Wheat futures were pressured by favourable U.S. weather, staying near two-and-a-half-month lows, while gold increased by 0.5% to $2,381 an ounce. Following a selloff last week, bitcoin stabilised around $58,900.
In Closing, the financial markets reflected optimism about potential interest rate cuts, driven by positive growth figures and anticipated favourable inflation data. As traders await further U.S. economic indicators, the global markets continue to navigate through a landscape of steady bonds, fluctuating currencies, and resilient commodity prices.
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