Asian stocks mostly advanced on Tuesday, buoyed by a strong finish on Wall Street and increasing investor optimism surrounding corporate earnings. The dollar remained close to a two-month high, supported by expectations of a smaller interest rate cut from the U.S. Federal Reserve next month.
Oil prices fell by approximately 3% following reports that Israeli Prime Minister Benjamin Netanyahu informed the United States of Israel’s willingness to target Iranian military installations, while refraining from striking nuclear or oil facilities. This development eased immediate concerns regarding potential supply disruptions.
Japan’s Nikkei 225 surged 1% to reach a three-week high, rebounding after a holiday on Monday. Meanwhile, MSCI’s broadest index of Asia-Pacific shares, excluding Japan, inched up 0.2%, as gains in Taiwan and Australia were offset by declines in Chinese markets.
Chinese blue-chip stocks fell by 0.4%, and Hong Kong’s Hang Seng Index dipped 0.3%, as investors expressed disappointment over the lack of concrete stimulus details from Beijing. Local reports indicated that the Chinese government may seek to raise an additional 6 trillion yuan ($850 billion) through Treasury bonds over the next three years to support its struggling economy.
Analysts at BlackRock Investment Institute commented, “China’s indication of policy stimulus has prompted us to adopt a modestly overweight position, especially given the currently depressed valuations. However, with details still lacking, we could revise our outlook if upcoming announcements fail to impress.”
The analysts noted their continued preference for U.S. stocks and the broader artificial intelligence (AI) theme, as corporate earnings growth expands beyond the technology sector. However, concerns regarding inflated valuations could lead to short-term sell-offs, prompting a focus on global investments that offer attractive valuations and potential catalysts.
Overnight, the S&P 500 and Dow Jones Industrial Average reached record high closes, driven by strong performances from semiconductor stocks, particularly a 2.4% rise in AI leader Nvidia. The positive momentum was further fueled by robust earnings reports from JP Morgan and Wells Fargo.
Looking ahead, major financial institutions, including Citigroup, Bank of America, and Goldman Sachs, are set to release their quarterly results on Tuesday.
In the foreign exchange market, the dollar slipped 0.2% against the yen, trading at 149.50, pulling back from a 2.5-month high of 149.98 reached overnight. The euro held steady at $1.0906, recovering from a ten-week low ahead of a critical interest rate decision from the European Central Bank on Thursday.
The dollar’s strength has been underpinned by expectations that the Federal Reserve will implement a smaller 25 basis point rate cut next month instead of a larger 50 basis point reduction, given that the economy continues to grow without overheating. Fed Governor Christopher Waller emphasized the need for “more caution” regarding interest rate cuts, while Minneapolis Fed President Neel Kashkari advocated for a more measured approach to rate reductions.
Traders are pricing in an 88% probability of a 25 basis point cut next month, with a 12% chance of rates remaining unchanged, according to CME’s FedWatch tool.
In the bond market, cash Treasuries fell slightly in early Asian trading following a holiday in the U.S. on Monday. Two-year Treasury yields rose by 1 basis point to 3.9533%, while ten-year yields climbed 2 basis points to 4.0885%.
Oil prices extended their decline for a third consecutive session amid ongoing demand concerns, with Brent crude futures falling 2.9% to $75.22 per barrel after a 2% drop the previous night.
Gold prices dipped by 0.1%, settling at $2,648.57 per ounce.
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