Asian stock markets rebound following elevated U.S. inflation figures
Asian Markets Show Mixed Reaction to U.S. Inflation Data
The release of the July U.S. Producer Price Index (PPI) caused a ripple in Asian markets, with stocks initially dipping and expectations for a Federal Reserve rate cut being tempered. The MSCI Asia-Pacific index excluding Japan fell by about 0.2–0.3% on the PPI report as investors reassessed the likelihood of a rate cut.
Before the PPI release, markets had largely priced a 100% probability of a Federal Reserve rate cut of 25 basis points in September. After the hot PPI data, this probability dropped slightly to about 92.1%, and the chance of a larger 50 basis-point cut fell from around 5.7% to zero. The increase in producer prices suggested more persistent inflationary pressure, making the Fed less likely to cut rates aggressively in September without exacerbating inflation concerns.
U.S. Treasury yields also reacted, with the 10-year yield modestly declining and the 2-year yield—more sensitive to Fed rate expectations—falling slightly as traders recalibrated expectations. U.S. stock futures were mostly flat or slightly positive amid this uncertainty during Asian trading hours.
The Nikkei rebounded 1.6 percent to near a new record high, following a sell-off on Thursday. In contrast, stocks in Hong Kong are down 1.1 percent. In early European trades, pan-region futures, German DAX futures, and FTSE futures are up 0.5 percent each. Markets in India and South Korea are closed for public holidays.
Cryptocurrency markets stabilized after a new record for bitcoin proved fragile. Bitcoin is currently up 0.8 percent, and ether gained 1.7 percent. Gold is slightly lower as the markets digest the path of inflation-adjusted interest rates, with spot gold trading up 0.3 percent at $3,343.94 per ounce.
The two-year yield, which is sensitive to traders' expectations of Fed fund rates, slipped to 3.7233 percent. The CSI 300 rose 0.8 percent after the release of weaker-than-expected Chinese economic data for July. The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, decreased by 0.2 percent.
Marc Velan, head of investments at Lucerne Asset Management in Singapore, stated that the first meeting between U.S. President Donald Trump and Russian leader Vladimir Putin may not be a major market-moving event. Brent crude is down 0.3 percent ahead of the meeting between Trump and Putin in Alaska.
Australian shares are currently up 0.7 percent, bucking the initial trend in Asian markets following the PPI release. This dynamic highlights the sensitivity of global markets to U.S. inflation data and the Fed’s policy outlook. Traders are reining in expectations of how quickly the Federal Reserve will be able to cut rates at its September meeting.
- The U.S. Producer Price Index (PPI) news affected Asian markets, causing the MSCI Asia-Pacific index excluding Japan to fall by approximately 0.2–0.3%.
- Initially, markets had largely priced a 100% probability of a Federal Reserve rate cut of 25 basis points in September, yet, after the hot PPI data, this probability dropped slightly to about 92.1%.
- As a result of the PPI report, U.S. Treasury yields reacted, with the 10-year yield moderately falling, while the 2-year yield—sensitive to Fed rate expectations—slightly decreased.
- The Asian markets were uncertain, as U.S. stock futures were mostly flat or slightly positive, while the Nikkei rebounded 1.6 percent and European markets showed signs of growth.
- Gold markets digested the path of inflation-adjusted interest rates, with spot gold trading up 0.3 percent at $3,343.94 per ounce, despite cryptocurrency markets stabilizing slightly after a new record for bitcoin proved fragile.
