Asian equities saw a positive shift on Thursday, driven by growing hopes for an end to the war in Ukraine following talks between U.S. President Donald Trump and Russian President Vladimir Putin. The rally was further fueled by improving prospects for the Chinese market, which has gained momentum due to breakthroughs in artificial intelligence and state support for the property sector.
Equities in the region rose for a second consecutive day, with Japanese and Hong Kong stocks making notable gains. Investors appeared to shrug off the higher-than-expected U.S. inflation data, which had previously sparked a selloff in Treasuries. Instead, attention shifted to the diplomatic talks between the U.S. and Russia, raising expectations that the conflict in Ukraine could be nearing a resolution.
The shift in risk sentiment comes after a weaker start to the year for Asian markets, which had been weighed down by Trump’s tariff threats, a stronger dollar, and a lack of significant policy stimulus in China. However, recent developments, including the AI breakthrough and signs of government support for troubled property developers, have lifted Chinese markets.
Charu Chanana, Chief Investment Strategist at Saxo Markets in Singapore, noted that the potential resolution of the Russia-Ukraine conflict, along with continued momentum in China’s tech sector, has helped boost market sentiment. “The January CPI figures are often distorted by annual costs, meaning the data may be sidelined for now,” Chanana said, adding that Trump’s tariff negotiations are now the key driver in the market.
In commodity markets, oil prices extended their decline following the U.S.-Russia peace talks, while the U.S. dollar index remained largely unchanged. The Japanese yen saw a slight rebound after a more than 1% drop on Wednesday, while Treasuries remained steady. Australian and New Zealand bonds followed Wednesday’s selloff.
Trump’s phone call with Putin marked a significant shift in U.S. foreign policy, as the two leaders agreed to begin negotiations aimed at ending the war in Ukraine. This move blindsided European allies, who feared that a more conciliatory U.S. stance could be seen as a concession to Russia.
In China, authorities are reportedly preparing a proposal to help real estate giant China Vanke Co. cover a funding gap of around 50 billion yuan ($6.8 billion), signaling continued government support for the beleaguered property sector.
Looking ahead, Asian data releases include Japan’s producer price index and an interest rate decision in the Philippines. Additionally, China’s money supply data could be released by February 15, while India’s Prime Minister Narendra Modi is set to meet Trump at the White House later today.
In the U.S., Treasury yields fell across the curve on Wednesday, as investors adjusted their expectations for Federal Reserve rate cuts following the inflation report. The January consumer price index (CPI) rose 0.5%, its largest monthly increase since August 2023, with core CPI rising 0.4%. Both year-over-year headline and core inflation figures also exceeded forecasts. The data led investors to push back expectations for a rate cut, with the first potential reduction now seen in December.
Fed Chair Jerome Powell acknowledged the progress made in reducing inflation but stressed that there is still more work to do.
Despite the inflation concerns, major U.S. indices showed resilience. The S&P 500 closed down 0.3%, recovering most of its 1.1% drop after the inflation data. Tesla Inc. led gains in mega-cap stocks, while Meta Platforms continued its upward streak, rising for the 18th consecutive session. The Nasdaq 100 also erased an intraday loss, and in after-hours trading, Cisco Systems saw a surge following an optimistic sales forecast.
Gold maintained its rally, inching closer to its record high achieved earlier in the week.
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