Asian Equities Remain Subdued Amid Uncertainty over Fed Rate Cuts
Gold Prices Rise as Hope for Fed Easing Continues
Asian equities were subdued on Friday as investors assessed the uncertain path for Federal Reserve interest rate cuts, influenced by a murky U.S. inflation outlook. Gold prices reached a fresh all-time peak following a mild reading for producer price inflation, keeping hopes alive for Fed easing this year. However, U.S. Treasury yields remained close to five-month highs after hotter-than-expected consumer price data mid-week forced a reduction in rate cut expectations.
Market Expectations Adjusted After CPI Shock
Market expectations for Fed rate cuts have shifted, with fewer than two quarter-point reductions anticipated this year, contrasting with the three cuts previously projected by Fed officials. This adjustment came after a rapid decrease in easing bets triggered by Wednesday’s CPI data surprise. Despite this, Fed officials emphasized that there is no urgency to ease, highlighting the strength of the economy and the uneven retreat in inflation as factors arguing against immediate rate cuts.
Positive Outlook for Equities Despite Rate Cut Uncertainty
Despite the uncertainty surrounding Fed rate cuts, IG analyst Tony Sycamore remains optimistic about the outlook for equities. He believes that as long as U.S. economic growth remains robust, inflation stays contained, and bond market sell-offs do not escalate, the backdrop for U.S. equity markets will remain supportive even without Fed rate cuts.
Regional Market Performance
Japan emerged as a bright spot in the Asia Pacific region on Friday, with the Nikkei 225 index rising by 0.5%. Tech shares led the gains, drawing inspiration from a rally in U.S. peers. However, losses were seen in other markets, with South Korea’s KOSPI slipping by 0.39% and Singapore’s Straits Times Index down by 0.12%. Hong Kong experienced the worst losses, with the Hang Seng index sliding by 1.31% due to pressure from property shares.
Global Economic Indicators and Market Trends
Long-term U.S. Treasury yields remained high in Asian trading, supporting the dollar. Crude oil prices rose following tensions in the Middle East, with Iran vowing to retaliate for a suspected airstrike on its embassy in Syria. Gold prices climbed to a record high, and futures for both Brent crude and U.S. West Texas Intermediate crude saw gains.
