On Friday, Asian markets faced downward pressure following data indicating the continued strength of the U.S. economy, sparking concerns about inflation and dampening expectations of aggressive interest rate cuts by the Federal Reserve.
The surge in global equities on Thursday, triggered by the Fed’s dot plot projection of three interest rate cuts this year, was tempered by rising prices in January and February. This was further compounded by announcements of rate cuts by the central banks of Switzerland and Mexico, signaling a potential reversal of their tightening measures.
While U.S. markets reached record highs for the second consecutive day, driven by a rally in the tech sector and anticipation of reduced interest rates, Asia struggled to sustain the upward momentum. Economic data served as a reminder that the U.S. economy remained robust despite the tightening credit environment.
Notably, existing home sales in the U.S. saw the most significant increase in a year, suggesting that buyers were adjusting to higher borrowing costs. Additionally, initial jobless claims remained near historic lows, indicating a tight labor market. Furthermore, the manufacturing purchasing managers index (PMI) showed faster-than-expected growth, further underscoring the resilience of the U.S. economy.
“This could potentially lead the Fed to implement interest rate cuts slower than the market anticipates,” warned Stephen Innes, Managing Partner at SPI Asset Management.
Rodrigo Catril, Senior FX Strategist at National Australia Bank, noted that “the composite measure of prices derived by manufacturers and service providers rose to an almost one-year high on the back of continued wage growth and higher fuel costs, suggesting stubborn inflation.”
Most markets in Asia saw losses, with Hong Kong leading the decline by more than two percent, driven by a sell-off in tech firms following concerns about Semiconductor Manufacturing International Corp’s potential violation of US law by producing a processor for sanctioned telecom giant Huawei.
Shanghai, Sydney, Singapore, Seoul, Bangkok, Manila, and Jakarta also experienced declines. However, Tokyo, Taipei, Mumbai, and Wellington saw gains.
In Europe, London opened higher, while Paris and Frankfurt were both down.
The yen strengthened slightly after Japan reported a 2.8 percent jump in inflation, raising speculation about further interest rate hikes following the Bank of Japan’s recent decision to raise rates for the first time in 17 years. However, the currency had faced pressure earlier in the week after Bank of Japan Governor Kazuo Ueda cautioned against hasty policy changes following the shift away from negative interest rates.