(Feb 16) : Asian equities were poised to rise Monday after recent selling pressure in US stocks eased and inflation data supported the outlook for Federal Reserve rate cuts this year.
Equity index futures for Japan and Australia pointed to gains, at the start of a week marked by the Lunar New Year holiday that will affect markets across the region. Mainland China will be closed all week, while Hong Kong will reopen Friday. US markets are closed Monday for Presidents’ Day.
The dollar was steady against major currencies in early Sydney trading. Bitcoin traded around US$68,800 after swinging over the weekend.
The muted moves indicated a broadly supportive backdrop for risk sentiment after consecutive weekly declines for the S&P 500, driven by uncertainty about the impact of AI on businesses from software to logistics.
Friday data showed the US consumer price index rose 0.2% in January, the smallest gain since July and restrained by lower energy costs. While services costs picked up last month, prices of core goods remained stable and the core CPI rose from a year ago by the least since 2021.
The data was supportive of US rate cuts, lifting Treasuries. The US 10-year and policy-sensitive two-year yields dropped five basis points on Friday. Traders continue to fully price in a Fed rate cut in July, as well as a strong likelihood of a move in June. Australian yields fell early Monday.
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“Overall, this won’t change Fed policy, but it will ease the path towards a cut in rates sooner rather than later,” said Neil Birrell at Premier Miton Investors.
In Asia, data set for release includes gross-domestic product for Thailand, industrial production for Japan and wholesale prices, trade and unemployment for India.
In China, President Xi Jinping signaled a desire to “fully leverage the advantages of China’s super-large-scale market,” as he called for anchoring economic growth around domestic demand, in a speech released Sunday.
See also: Stocks tumble as risk mood sours, gold rebounds
Goldman Sachs Group Inc. upgraded its forecast for China’s current-account surplus this year. Elsewhere, a worsening earnings picture is darkening the outlook for Chinese equities.
Investors will be keeping a close eye on geopolitical developments. US Secretary of State Marco Rubio and Japanese Foreign Minister Toshimitsu Motegi reaffirmed their commitment to deepen bilateral ties in a meeting Saturday, as the Asian nation faces escalating tensions with China.
Federal Reserve
Friday’s US inflation data suggest that price pressures remain a little too hot for comfort, but the direction of travel for inflation continues to look to be lower — even if this has proved a bumpy and slow process, according to James McCann at Edward Jones.
“For the Fed, this probably doesn’t change much in the near term,” he said. “We do see scope for further easing later this year. However, this is contingent on a more convincing decline in inflation towards target with the urgency for additional cuts lower now that downside risks in the labor market have seemingly eased.”
Fed Bank of Chicago President Austan Goolsbee said the central bank can cut rates further if inflation is on track to reach its 2% target, but that’s not currently the case.
“Right now we are not on a path back to 2%. We’re kind of stuck at 3%, and that’s not acceptable,” Goolsbee said Friday on Yahoo! Finance.
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