Relief Over U.S. Inflation Lifts Asian Stocks

Image Credit: Reuters

Asian markets saw gains on Monday, buoyed by encouraging U.S. inflation data that renewed optimism for potential policy easing in 2025 and relief over the U.S. avoiding a government shutdown.  

With a lighter week ahead for economic events, only a few central bank meeting minutes are expected, while the U.S. data calendar holds less significance. The dollar remains strong, supported by a resilient U.S. economy and rising bond yields, which continue to strain commodities and emerging markets by pressuring their currencies and fueling inflation.

The positive U.S. inflation report lifted the MSCI’s broad Asia-Pacific index, excluding Japan, by 0.3%. Japan’s Nikkei rose 0.7%, and South Korea’s markets were up 0.9%. Meanwhile, S&P 500 and Nasdaq futures climbed 0.3% and 0.4%, respectively, following last week’s losses, although Nasdaq has gained 30% year-to-date.

Bank of America analysts highlighted that the S&P 500’s 23% annual gain is primarily driven by its 12 largest companies, with the broader market up just 8%. This narrow concentration is seen as a risk heading into 2025.

Friday’s rally on Wall Street came after core U.S. inflation surprised on the downside at 0.11%, easing some of the Federal Reserve’s hawkish concerns. Futures markets now predict a 53% chance of a rate cut in March and 62% by May, with a total of two rate cuts expected in 2025, keeping rates between 3.75%-4.0%. Earlier market expectations had been for a lower 3.0% rate floor.

Rising expectations for more government borrowing have driven bond yields higher, with the 10-year yield seeing its steepest two-week rise since April 2022, up 42 basis points. JPMorgan’s Michael Feroli commented that recent inflation trends, combined with risks from tariffs and immigration restrictions, have tempered the Federal Reserve’s inflation outlook. He forecasts a total of 75 basis points in rate cuts next year, starting from the second quarter.

In currency markets, the dollar index held near two-year highs at 107.970, with the euro vulnerable at $1.0432 after testing support levels. The yen traded at 156.44, with Japanese intervention looming should it approach 160.00.

Gold was under pressure from the strong dollar and high bond yields, trading at $2,624 per ounce after a 1% weekly drop. Oil prices remained subdued amid concerns over weaker Chinese demand, with Brent crude at $73.00 a barrel and U.S. crude at $69.58.

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.