Asian markets rallied on Monday, tracking a rally on Wall Street after data showing U.S. inflation slowed further in June fueled hopes the Federal Reserve will cut interest rates.
The upbeat mood comes at the start of a busy week for traders, with the central banks of the United States and Japan making policy decisions, a key US jobs report due on Friday and megacaps reporting earnings.
The gains helped recoup some of the heavy losses suffered last week after disappointing results from tech titans Tesla and Alphabet prompted panic selling among investors who had piled into the sector this year.
All three key indexes in New York jumped more than one percent on Friday after the Fed’s preferred inflation gauge β the personal consumption expenditures (PCE) index β slowed to 2.5 percent last month.
The US Fed could open the door to a September rate cut this week
The reading, which was just above officials’ two percent target, was the latest to bolster bets for a rate cut in September and fuel expectations for two more before January.
Fed chief Jerome Powell sparked a rally in markets earlier this month when he said policymakers don’t need to see the reading hit 2% before they move.
The bank is due to make an announcement on Wednesday, ahead of the release of the non-farm payrolls report on Friday.
However, analyst Stephen Innes said there were still risks ahead.
“It’s a week to bond. A significant negative loss in NFP could mean ‘bad news is bad news’ for stocks,” he told his Dark Side Of The Boom newsletter.
“While an upward pace could reduce the chances of one of those Fed rate cuts in 2024 cake. That could strengthen the US dollar and spoil everyone’s rate cut party.”
Asian markets are struggling to recover from the tech disaster after the US data
Asian investors were bullish at the start of the week.
Tokyo rallied two percent after eight days of losses, while Hong Kong, Sydney, Seoul, Singapore, Taipei and Manila were also up.
The Bank of Japan is also set to make an announcement on Wednesday amid speculation it will raise interest rates again after doing so in March for the first time in 17 years as it moves away from its ultra-loose policy.
Expectations of a hike, either this week or at the next BoJ meeting, along with bets on a Fed cut helped push the yen higher against the dollar after hitting a four-decade low near 162 per dollar at the start of the month.
However, analysts at Moody’s Analytics said: βWe expect the Bank of Japan to leave interest rates on hold.
βThe focus will be on the tapering of government bond purchases announced in June. With inflation cooling and economic data underperforming, a rate hike now would be premature.
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“We are betting on a rate hike in September; by then, economic indicators should show improvement.”
Keys around 02:30 GMT
Tokyo – Nikkei 225: UP 2.0 percent at 38,415.75 (break)
Hong Kong – Hang Seng Index: UP 1.1 percent at 17,210.90
Shanghai – Composite: UP 0.2 percent to 2,897.67
Dollar/yen: DOWN at 153.37 yen from 153.75 yen on Friday
EUR/USD: UP at $1.0866 from $1.0859
GBP/USD: UP at $1.2883 from $1.2875
Euro/pound: UP at 84.36 pence to 84.32 pence
West Texas Intermediate: DOWN 0.2% to $77.02 a barrel
North Sea Brent crude: FLAT at $80.27 a barrel
New York – Dow: UP 1.6 percent at 40,589.34 (close)
London – FTSE 100: UP 1.2 per cent at 8,285.71 (close)
Source: AFP