Asian equities witnessed a notable rally on Friday, buoyed by signs of economic stabilization in China and a retreat in the US dollar. The Hong Kong Hang Seng and Australia’s S&P/ASX 200 advanced on data indicating the highest growth in retail sales in China over the past eight months, providing optimism that the world’s second-largest economy may be on the road to recovery. Meanwhile, Japanese benchmarks rose approximately 0.8%, with the weaker yen boosting exporters.
The US dollar, which had been rising steadily, saw its rally come to a halt. Federal Reserve Chair Jerome Powell signaled that the central bank might adopt a cautious approach to rate cuts in the near future, offering emerging markets some relief as dollar strength has recently drained returns from these economies’ local currency bonds. Salman Niaz, head of global fixed income for APAC ex-Japan at Goldman Sachs Asset Management, shared his insights on Bloomberg Television, noting that “a December rate cut is in the cards,” with more rate reductions potentially slated for 2025. Niaz emphasized the appeal of dollar-denominated debt, suggesting that emerging market assets have attractive opportunities in the hard currency sector, despite local currency volatility.
Friday’s trading offered respite to emerging market assets, which have faced challenges throughout the week due to a mix of macroeconomic factors, including uncertainty over US President-elect Donald Trump’s cabinet picks and fluctuating interest-rate expectations. A significant index tracking emerging market equities has been poised for its worst week since June 2022. Similarly, an index of emerging market currencies has come close to wiping out year-to-date gains.
In Hong Kong, shares edged up, bolstered by data on China’s retail sales. A surge in retail demand is seen as an indicator of consumer confidence, which could signal stronger domestic demand and stability in China’s post-COVID-19 economic trajectory. Likewise, in Japan, the Nikkei 225 index gained as exporters benefited from a weakened yen, which hit 156.44 per dollar. This depreciation of the yen has led Japanese benchmarks to perform well, further supported by improved risk sentiment across the region.
The Australian market showed gains as well, with the S&P/ASX 200 up by 0.5%, aided by improving Chinese data and broader commodity price stabilization.
While many markets across Asia experienced gains, South Korean stocks encountered setbacks on Friday, primarily driven by a sell-off in battery manufacturers. News emerged that US President-elect Trump may abolish the $7,500 tax credit for electric vehicle purchases, a development that could impact Korean battery suppliers such as LG Energy Solution and Samsung SDI, which heavily rely on US automakers as customers. The South Korean won also came under scrutiny after the country was added to the US Treasury’s “monitoring list” for foreign exchange practices, spotlighting potential risks for South Korea’s economic relationship with the US.
Later on Friday, Alibaba Group Holding Ltd. was set to release its earnings report, drawing attention from investors. Alibaba’s performance is closely watched as a reflection of Chinese consumption patterns, especially following JD.com Inc’s recent earnings report, which showed moderate revenue growth. Alibaba’s report could provide further insights into the health of the Chinese economy, especially regarding consumer sentiment and the spending power of Chinese consumers.
In addition to corporate earnings, the economic calendar in the region included gross domestic product (GDP) data for Malaysia and Hong Kong. Analysts awaited these releases for further clues on the strength of the broader Asia-Pacific economy. With markets closed in India for the day, trading activity centered on China, Japan, South Korea, and Southeast Asia.
A recent gauge of the dollar’s performance revealed a pause after five consecutive days of gains, a streak spurred by Federal Reserve Chair Powell’s recent remarks suggesting that rate cuts may not be imminent. However, market speculation is now leaning toward a rate cut as early as December, with further reductions potentially on the horizon next year. Powell’s statement was cautious, acknowledging inflation concerns and a strong economic outlook, yet signaling flexibility should inflation pressures ease.
US Treasury yields were relatively stable, with the two-year yield remaining unchanged, while the 10-year yield saw a minor rise of three basis points to 4.46%. The mixed signals from the Federal Reserve have fueled investor speculation on the potential trajectory of rate cuts, impacting both equities and the dollar.
In commodities, oil markets are heading for a weekly decline, pressured by the dollar’s recent strength and concerns about a potential supply glut in 2025. West Texas Intermediate (WTI) crude oil dropped 0.6%, settling at $68.26 a barrel, as analysts weigh supply-demand dynamics in light of recent OPEC production cuts and US shale output expectations.
Gold remained near a two-month low, trading at $2,567.43 per ounce, after seeing a minor 0.1% gain. The recent dip in gold prices reflects market positioning toward risk assets, as well as moderate interest in dollar-denominated safe havens. The stability in gold prices could shift if further rate cuts are anticipated, as these would typically increase demand for non-yielding assets like gold.
On Thursday, the US economic landscape revealed strong producer price data and unexpected resilience in the labor market, as jobless claims fell below expectations to their lowest level since May. The recent data, which surpassed forecasts, underscores the Federal Reserve’s caution over aggressive rate cuts. Equity markets, however, have begun to show signs of fatigue, with the S&P 500 dropping by 0.6% and the Nasdaq 100 slipping 0.7% on Thursday.
The pullback in US indices was partially driven by declines in automaker stocks, such as Tesla Inc. and Rivian Automotive Inc., following reports that President-elect Trump might remove the $7,500 tax credit for electric vehicle purchases. This policy shift could impact the EV market and associated industries, creating new considerations for investors in the automotive and green energy sectors. Conversely, Walt Disney Co. outperformed, posting gains following a positive earnings report that surpassed profit expectations.
Global Market Highlights and Future Outlook
- S&P 500 futures dropped 0.3% in early trading on Friday.
- Japan’s Topix index rose 0.9%, while Australia’s S&P/ASX 200 gained 0.5%.
- Hong Kong’s Hang Seng saw a modest increase of 0.1%, while the Shanghai Composite slipped 0.1%.
- In Europe, Euro Stoxx 50 futures fell 0.5% ahead of the opening bell.
In currency markets, the Bloomberg Dollar Spot Index showed little change, while the euro traded at $1.0539. The Japanese yen saw a marginal decline to 156.44 per dollar, continuing its depreciation trend that supports Japanese exports. China’s offshore yuan strengthened by 0.1%, reflecting improved sentiment amid positive domestic data. Cryptocurrencies remained volatile, with Bitcoin down 0.2% to $88,075.74 and Ether dropping 1.5% to $3,071.01, as digital assets react to broader market conditions and regulatory developments.
- US 10-year Treasury yields rose three basis points to 4.46%, while Japan’s benchmark 10-year yield edged up 1.5 basis points to 1.070%.
- Australia’s 10-year government bond yield declined five basis points to 4.64%, reflecting shifts in interest rate expectations amid potential Federal Reserve rate cuts.
- Crude oil prices dropped, with WTI down 0.6% to $68.26 per barrel, pressured by potential global oversupply concerns for the next year.
- Gold prices remained steady, showing a minor 0.1% rise to trade near $2,567.43 per ounce.
