Equities Show Signs of Recovery as Traders Balance US Resilience With Fed Cut Bets

- Equities showed signs of recovery as traders balanced resilience in the US economy with firming expectations of Federal Reserve cuts in coming months.

Asian equities rose Friday, tracking an upbeat lead from Wall Street as traders continue to price in expectations of US interest-rate cuts later this year.

Australian equities advanced 0.7%, led higher by materials and energy stocks. The gains came as data showed consumer inflation in Australia accelerated in the second quarter, largely driven by higher prices for food and transport.

Nikkei futures were up 0.3%, tracking gains for the Nikkei 225 index, which closed up 0.2% after earlier slipping into negative territory. Tokyo inflation accelerated for a third month in July, rising 2.9% from a year earlier, driven by higher energy and food costs. The reading is closely watched by the Bank of Japan ahead of its policy meeting next week.

Among individual stocks, Taiwan Semiconductor Manufacturing Co. shares tumbled as much as 6.5% on Friday in catchup to previous tech-related declines in global stocks as Taiwanese markets reopened following disruptions caused by Typhoon Gaemi.

The US 10-year yield was steady in Asian trading after slipping four basis points on Thursday as Treasuries pushed higher. Gains for US government debt came as traders weighed signs of a resilient US economy against calls for quicker rate cuts from the Federal Reserve. The swaps market is currently pricing in the first rate cut in September.

“We’re in the midst of a great, rate-led rotation from tech to everything else,” said Callie Cox at Ritholtz Wealth Management. “Sure, it’s been painful, but it may be worth weathering this storm for what could come on the other side. Believe in this bull market, or risk getting left behind.”

The yen traded around 154 per dollar in whipsawing trade and remains off its intra-day highs from the prior session. Inflation in Tokyo accelerated for a third month in July, reinforcing bets of a possible interest rate hike when the central bank’s policy board meets next week.

“To convincingly crack below 150, we need the Fed to actually deliver, or to see much more in the way of selling of foreign bonds by institutional Japan,” Tim Baker, Head of Macro Research for Deutsche Bank AG, said on Bloomberg Television.

Investors were also gauging the path forward for the Chinese economy and the potential for further stimulus after the People’s Bank of China cut its medium-term lending facility rate on Thursday.

The cut was “a dovish surprise due to the unusual timing of the MLF loan extension,” which typically occurs in the middle of a month, said Goldman Sachs economists including Xinquan Chen and Hui Shan. “High-profile monetary policy easing should continue in 2025 to pave the way for demand-side stimulus,” while rates may fall lower in the medium term adding further downward pressure to government bond yields, the economists said.

Growth Accelerates

In the US, the S&P 500 slipped 0.5% Thursday while the Nasdaq 100 declined 1.1% as tech giants including Nvidia Corp and Microsoft Corp slumped. Small caps outperformed in a further sign investors are preparing for interest-rate cuts that will support the broader economy.

Economic growth accelerated by more than forecast in the second quarter, illustrating demand is holding up under the weight of higher borrowing cots. Gross domestic product increased at a 2.8% annualized rate after rising 1.4% in the previous quarter. A closely watched measure of underlying inflation rose 2.9%, easing from the first quarter but still above estimates.

The US economy is much stronger than people realize and to the extent that markets were worried about a growth slowdown, they should breathe a sigh of relief after the GDP number, according to Chris Zaccarelli at Independent Advisor Alliance.

“As long as the economy avoids a recession, then this bull market will continue through 2024 and well into 2025, so we would take advantage of any pullbacks along the way,” he noted.

In commodities, West Texas Intermediate was steady after it gained for a second day Thursday. Gold also was little changed Friday.

Some of the main moves in markets:

Stocks

Australia’s S&P/ASX 200 rose 0.7%

Nikkei futures gained 0.3%

Taiwan’s Weighted Index fell 0.5%

Hong Kong’s Hang Seng up 0.2%

China’s CSI 300 advanced 0.5%

MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.5%

Currencies

The yen was steady at 154.03 per dollar

The offshore yuan traded at 7.0335 against the greenback, largely unchanged from the prior session

Cryptocurrencies

Bitcoin slipped 0.6% to $23,664.4

Ether는 $1,722로 거의 변하지 않았습니다

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