Asian equities faced downward pressure today as signs of easing US inflation heightened expectations of rate cuts, prompting a shift away from major tech stocks on Wall Street. Japanese shares dropped over 1% following a surge in the yen, amid speculation of official intervention. The currency fluctuated during early trading on Friday amid reports suggesting rate checks by the Bank of Japan.
South Korea’s tech-heavy Kospi Index was weighed down, contrasting with gains in Australian shares. On Thursday, the Nasdaq 100 fell 2.2%, dragged by notable performers such as Nvidia Corp.
The data showing sluggish US core consumer prices, excluding energy and food, reinforced the case for Federal Reserve rate reductions. This optimism about lower rates triggered a move from the safety of big tech to riskier sectors in the US market.
Callie Cox of Ritholtz Wealth Management noted, “The big tech trade is reversing course, attracting broader market participation.” Despite declines in the S&P 500, she added, “This selloff presents opportunities for long-term investors.”
US small-cap stocks benefited notably, with the Russell 2000 outperforming the Nasdaq 100 by its widest margin since November 2020.
The anticipation of reduced US interest rates pushed 10-year Treasury yields down by seven basis points to 4.21%, and the dollar saw its largest decline since May. These movements stabilized early Friday, while Australian and New Zealand government bonds opened higher.
Chicago Fed Bank President Austan Goolsbee described the data as “encouraging,” signaling confidence in the central bank’s inflation targets.
Chris Larkin of E*Trade at Morgan Stanley suggested that while a July rate cut remains unlikely, Thursday’s “Fed-friendly CPI” brings September closer into view. He raised concerns over whether the current stock market highs have already priced in multiple rate cuts.
Steve Eisman of Neuberger Berman Group forecasted prolonged strength in US megacap tech stocks, citing increasing consumer accessibility to artificial intelligence through electronic devices.
In Asia, upcoming economic reports include China trade data, Japan industrial output figures, and Indian inflation data. China may also release money supply and new loans statistics today.
Meanwhile, West Texas Intermediate crude oil prices extended gains for a third consecutive day on Friday, supported by easing inflation reports. Gold prices held steady following a sharp rise on Thursday.
