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Tech-Led Rally Propels Asian Stocks Higher Amid Speculation on US Interest Rate Trajectory

ByDayne Lee

Feb 15, 2024

On Thursday, Asian stock markets experienced a notable surge, driven predominantly by gains in the technology sector. This upward momentum saw Japan’s Nikkei index reaching a new 34-year high, while the US dollar showed signs of stabilization near its three-month peak. Market participants are keenly evaluating the potential timing for the commencement of the US Federal Reserve’s (Fed) easing cycle.

The MSCI’s broadest index of Asia-Pacific shares outside Japan recorded a 0.7% rise, buoyed by an impressive nearly 3% jump in the information technology index. Notably, Taiwanese equities reached unprecedented heights, with Taiwan Semiconductor Manufacturing Company Ltd (TSMC) witnessing a remarkable 8% increase.

In Japan, the Nikkei index closed 1.2% higher, touching 38,188.74 at one point during the trading session, its strongest position since January 1990. This movement brought the index tantalizingly close to surpassing its all-time high observed in December 1989.

European stock markets also appeared poised for a positive start, with futures indicating a strong opening across major indexes.

Global Interest Rate Landscape

Investors’ anticipation of prompt and significant rate cuts by the Fed has been tempered by recent data highlighting the resilience of the US economy and labor market, alongside persistent inflation concerns. Recent consumer price index figures, particularly in the housing sector, have exceeded expectations, prompting a recalibration of expectations for the Fed’s easing timeline. Market projections have shifted, with a majority now foreseeing an 82% likelihood of a rate cut by June, delaying the anticipated start of the Fed’s easing cycle.

The market now aligns more closely with the Fed’s December forecast, expecting around 97 basis points of rate reductions within the year. This cautious stance is echoed by central bankers globally, who are closely monitoring the Fed’s strategies and their implications for global monetary policy.

Inflation and Monetary Policy Adjustments

Recent comments from Chicago Fed President Austan Goolsbee have underscored the central bank’s commitment to returning to its 2% inflation target, suggesting that short-term inflation spikes may not significantly derail this objective. Goolsbee also highlighted the risks associated with delaying interest rate cuts, sparking a dip in Treasury yields.

In the coming European trading hours, attention will shift towards a series of economic data releases, with UK GDP and trade figures in the spotlight. These releases are particularly noteworthy following unexpected stability in British inflation rates in January, contrary to predictions of an increase.

Economic Developments and Currency Movements

Japan’s recent GDP figures have introduced fresh uncertainties regarding the Bank of Japan’s (BoJ) exit strategy from its ultra-easy monetary policy, revealing an unexpected contraction in the economy for the second consecutive quarter. This development has slightly bolstered the yen, although it remains close to the critical 150 per dollar mark, a level historically associated with potential intervention by Japanese monetary authorities.

US Market Dynamics and Crude Oil Trends

In the US, Wall Street concluded Wednesday’s trading session on a high note, propelled by gains in major ride-hailing companies and Nvidia’s ascendancy in the stock market valuation rankings. The US dollar index lingered near its three-month high, reflecting ongoing adjustments in currency markets.

Crude oil prices saw a modest decline, with US crude and Brent crude adjusting slightly downwards, underscoring the broader market’s sensitivity to global economic indicators and monetary policy expectations.

The recent rally in Asian stocks, led by significant gains in the technology sector and heightened interest in chip stocks, reflects a complex interplay of market expectations, monetary policy speculations, and global economic resilience. As markets continue to navigate through these dynamics, the focus remains on central bank policies, inflation data, and geopolitical developments that could influence the trajectory of global financial markets.

Featured image credit: Nikada via iStock

Dayne Lee

With a foundation in financial day trading, I transitioned to my current role as an editor, where I prioritize accuracy and reader engagement in our content. I excel in collaborating with writers to ensure top-quality news coverage. This shift from finance to journalism has been both challenging and rewarding, driving my commitment to editorial excellence.