Asian equities showed modest gains on Friday, buoyed by an optimistic outlook for the US economy and expectations of potential Federal Reserve rate cuts in the near future. Stock indices in Australia, Japan, China, and South Korea all experienced upward movement, mirroring the positive trend seen in US equity futures. Japanese shares, in particular, recovered from earlier losses and reflected a reversal in the yen’s strength ahead of the upcoming Bank of Japan meeting.
In contrast, shares of Taiwan Semiconductor Manufacturing Co. dropped significantly, falling up to 6.5% on Friday. This decline followed a broader downturn in global tech stocks and came as Taiwanese markets reopened after being disrupted by Typhoon Gaemi.
The yield on the US 10-year Treasury note remained relatively stable during Asian trading hours, following a four basis point decline the previous day. This stability occurred as US government debt prices increased, driven by a balance between a resilient US economy and anticipation of Federal Reserve rate cuts. The futures market currently suggests the first rate cut might occur in September.
Callie Cox of Ritholtz Wealth Management noted, “We’re experiencing a significant shift from tech stocks to other sectors due to changing interest rates. Although this transition can be challenging, it may be worthwhile to endure for the potential gains ahead. Investors need to decide whether to trust this bull market or risk missing out.”
The yen fluctuated around 154 per dollar, remaining below its previous session highs. Inflation in Tokyo accelerated for the third consecutive month in July, strengthening expectations of a possible interest rate hike by the Bank of Japan next week.
Tim Baker, Head of Macro Research at Deutsche Bank AG, stated on Bloomberg Television, “To break convincingly below 150, the Federal Reserve needs to act decisively, or we would need to see significant selling of foreign bonds by Japanese institutions.”
Meanwhile, investors are also assessing the future trajectory of the Chinese economy and the likelihood of additional stimulus measures following the People’s Bank of China’s cut to its medium-term lending facility rate on Thursday.
Goldman Sachs economists, including Xinquan Chen and Hui Shan, described the rate cut as an unexpected dovish move due to its atypical timing. They anticipate continued high-profile monetary policy easing into 2025, which may further reduce rates and exert downward pressure on government bond yields.
In the US, the S&P 500 fell 0.5% on Thursday, and the Nasdaq 100 dropped 1.1%, impacted by declines in major tech stocks like Nvidia Corp and Microsoft Corp. However, small-cap stocks outperformed, signaling investor confidence in the broader economy’s stability amid anticipated interest rate cuts.
Economic growth in the US accelerated more than expected in the second quarter, with GDP increasing at a 2.8% annualized rate compared to 1.4% in the previous quarter. A key measure of underlying inflation rose 2.9%, easing from the first quarter but still exceeding forecasts.
Chris Zaccarelli of Independent Advisor Alliance remarked, “The US economy is stronger than many realize. Given the recent GDP data, concerns about a growth slowdown should diminish. As long as the economy avoids a recession, the bull market is expected to persist through 2024 and into 2025, making it wise to take advantage of any market pullbacks.”
In commodities, West Texas Intermediate crude remained steady after gaining for two consecutive days, while gold prices showed little movement on Friday.
