Asian stock markets ended a three-day losing streak, buoyed by a reduction in Treasury yields and a weakening dollar, which sparked optimism for increased policy support following a spate of disappointing economic data from the US, China, and Japan. This turnaround in the stock markets was driven by investors’ anticipation of more supportive measures from central banks and governments, aimed at stabilizing and stimulating their respective economies in light of the recent negative data releases.
Stock indices rose in key markets such as Hong Kong, Japan, and Australia, contributing to a reduction in the weekly losses for the MSCI Asia Pacific Index. This rebound in equities was also supported by expected passive investment flows, as fund managers adjusted their portfolios ahead of the scheduled changes to the MSCI Standard Indexes set for Friday. Meanwhile, US stock futures experienced a decline during Asian trading hours, while US Treasuries continued their upward momentum. The dollar remained stable after its previous drop on Wednesday and is projected to continue its downward trend for the month.
In China, the stock market managed to overlook the weak economic data. Despite Asia's largest economy reporting official manufacturing and non-manufacturing Purchasing Managers' Indexes (PMIs) that missed expectations on Friday, with manufacturing slipping back into contraction, investor sentiment remained resilient. This resilience is attributed to the anticipation of further policy interventions to counteract the economic slowdown.
Wendy Chen, a senior investment analyst at GAM Investment Management Switzerland Ltd., explained on Bloomberg Radio that the disappointing PMI data in China is likely to prompt more aggressive fiscal and monetary policy measures. She emphasized the importance of policy support to tackle ongoing challenges in the property sector and to address persistent inventory issues in the country, suggesting that further stimulus could be on the horizon.
The economic slowdown in the US, coupled with weak manufacturing activity in China and a contraction in Japan’s industrial output, highlights the increasing difficulties faced by central bankers as they deliberate on their next policy moves. The pervasive weakness in global economic activity strengthens the position of investors who are betting on a loosening of monetary conditions across various regions, anticipating that central banks will need to adopt more accommodative stances to support growth.
The Japanese yen experienced fluctuations after news that Japan's industrial output had declined in April, while the nation's unemployment rate remained unchanged. Despite this, inflation in Tokyo — which serves as an indicator for the broader country — accelerated in May. This trend is likely to keep the Bank of Japan on track to consider a rate hike in the coming months. According to data compiled by Bloomberg, money markets are now pricing in about 29 basis points of rate hikes by the end of the year, up from 20 basis points at the beginning of May.
The S&P 500 index fell by 0.6% to 5,235 on Thursday, driven by losses in the technology sector. This decline was partly due to US officials slowing the issuance of licenses to chipmakers such as Nvidia Corp. and Advanced Micro Devices Inc. for large-scale AI accelerator shipments to the Middle East, based on information from sources familiar with the situation. This regulatory move has raised concerns about the future growth prospects for these companies, contributing to the broader tech sector's losses.
The US dollar remained steady while US Treasuries extended their gains from Thursday into the Asian trading session, ahead of the release of the Federal Reserve's preferred inflation measure. This came after a report indicated that the US economy grew at a slower pace, with both consumer spending and inflation being revised downwards. These adjustments in economic data have reinforced expectations that the Federal Reserve may need to maintain or even increase its accommodative policies.
Market participants are closely watching the core Personal Consumption Expenditures (PCE) price index, which is expected to show a slight easing in April compared to the previous month. Kristina Clifton, a senior economist and strategist at the Commonwealth Bank of Australia in Sydney, noted that any deviation from these expectations could modestly impact the US dollar, highlighting the sensitivity of the currency to changes in inflation data.
In other significant news, a jury found former US President Donald Trump guilty on all 34 counts of falsifying business records in his hush-money trial. This verdict makes Trump the first former US president to be convicted of criminal charges. With Trump scheduled for sentencing on July 11, this conviction poses substantial legal and political challenges as he prepares to face President Joe Biden in the November election as the presumptive Republican nominee.
Paresh Upadhyaya, director of fixed income and currency strategy at Amundi Asset Management in Boston, mentioned that the markets had somewhat anticipated a guilty verdict for Trump. However, he pointed out that the broader market impact could become more pronounced if this conviction shifts political momentum away from Trump and towards Biden, potentially affecting investor sentiment and market dynamics.
Looking ahead, investors' focus will shift to the upcoming European inflation data as they debate the potential actions of the European Central Bank (ECB). Market participants are speculating on the extent to which the ECB might cut rates following its expected policy easing next week. This data will be crucial in informing the ECB's decisions and shaping expectations for future monetary policy in the Eurozone.
31.05.2024
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