Asian markets kicked off the trading week on a high note, riding the wave of optimism generated by the previous week’s rally on Wall Street. Despite the looming Federal Reserve policy meeting, investors in major Asian markets showed confidence, propelling gains across the board.
Early trading saw Sydney’s S&P/ASX 200 index climb by 0.6% to reach 7,621.40, while South Korea’s Kospi index surged nearly 1.0% to 2,681.73. Hong Kong’s Hang Seng index followed suit, jumping 1.2% to 17,859.39, and the Shanghai Composite index rose by 0.6% to 17,859.39. However, trading in Tokyo was suspended for a Japanese national holiday, known as Showa Day, marking the beginning of Japan’s Golden Week, which spans through Monday.
Stephen Innes, managing partner at SPI Asset Management, attributed the positive market sentiment to the recent string of robust earnings reports, particularly from technology companies. These earnings reports were seen as the driving force behind last week’s rally on Wall Street. However, Innes also cautioned investors about the declining Japanese yen, which he identified as a potential risk factor. The yen hit a new 34-year low against the US dollar following the Bank of Japan’s decision to keep interest rates unchanged. Despite this decision aligning with market expectations, Innes noted policymakers’ lack of significant concern regarding the yen’s exchange rate.
In currency trading on Monday, the US dollar gained ground against the Japanese yen, edging up to 159.17 yen from 158.30 yen. The euro also saw a slight increase, trading at $1.0716 compared to $1.0699.
While a weaker yen can benefit Japan’s export-oriented industries, such as Toyota Motor Corp., by boosting the value of their overseas earnings when converted into yen, it may have long-term repercussions on the economy. These repercussions include reduced purchasing power and potential constraints on wage growth, particularly given Japan’s heavy reliance on energy imports.
On Wall Street, the positive momentum continued, with shares closing out the week on a high note. The S&P 500 index rallied 1% to mark its first winning week in the last four, while the Dow Jones Industrial Average rose by 0.4%. The Nasdaq composite index surged by 2%.
Amidst recent data indicating high US inflation, analysts anticipate the Federal Reserve will maintain its current interest rate stance. Despite earlier speculation about potential rate cuts, top Fed officials have signaled a willingness to keep interest rates high to address inflation concerns.
In the bond market, Treasury yields eased following the inflation report. The yield on the 10-year Treasury fell to 4.66% from 4.71%, while the two-year Treasury yield remained relatively steady at 4.99%.
In energy trading, benchmark US crude oil prices fell by 80 cents to $83.05 a barrel, while Brent crude, the international standard, lost 91 cents to $88.59 a barrel.
Overall, the positive momentum in Asian markets reflects investors’ optimism amidst ongoing economic developments and anticipation surrounding the Federal Reserve’s upcoming policy decisions.