After a week of turmoil in Asian markets fueled by US recession concerns, investors are trying to recover as they shift focus towards key inflation and retail data releases. Equities experienced a painful collapse following a big miss on US jobs creation but managed to bounce back and end on a positive note on Friday. The gains were supported by a report showing fewer people claimed unemployment benefits than expected, easing fears of a contracting US economy. Despite the return of some calm to trading floors, analysts warn that traders are still on edge and anxiously awaiting the next round of indicators, particularly the consumer price index and retail sales reports, which could give the Federal Reserve a signal to cut interest rates.
Investors are anticipating a potential interest rate cut of 25 basis points next month followed by at least one more before January, as recent data suggests that prices have been brought under control. However, Fed officials are divided on the outlook for rates, with some like Governor Michelle Bowman expressing caution about making reductions too early, while Boston Fed chief Susan Collins suggests officials could start cutting soon if the data continues to show tamed prices. Analysts warn of a potential “meltdown” if a higher consumer price index is paired with lower retail sales, which could lead to an exodus of investors from the markets.
In the US, all three major indexes ended on a positive note on Friday which had a positive impact on early Asian trading. While Hong Kong, Shanghai, Singapore, and Manila saw slight declines, Sydney, Seoul, Taipei, and Wellington experienced gains. Tokyo’s market was closed for a holiday. The yen weakened following last week’s fluctuations, surging to a six-month high against the dollar after the weak US jobs figures, leading to increased bets on a Fed rate cut. The Bank of Japan’s decision to raise its own rates for the second time in 17 years, along with reassurances to investors on stability, helped calm some nerves in the market, although underlying uncertainties still persist.
The expectation of significant rate cuts in the US suggests that market sentiment is influenced by the need for easing monetary policy to support economic growth. Anticipation of a cumulative 100 basis points in rate cuts this year and another 100 basis points in 2025 reflects investors’ belief that the Federal Reserve may need to ease aggressively. Hong Kong’s Hang Seng Index declined by 0.1%, while Shanghai’s Composite index fell by 0.2%. The euro and pound strengthened against the dollar, while the dollar rose against the yen and euro. Oil prices also saw a slight increase in West Texas Intermediate and Brent North Sea Crude, while major stock indexes like the New York Dow and London FTSE 100 closed on a positive note. The market remains cautiously optimistic as economic indicators continue to be monitored closely.
