Asian equity markets displayed a mixed performance on Friday, with several key benchmarks advancing while Japanese shares faltered in response to a stronger yen. The decline in U.S. Treasury yields provided some relief to global markets, lifting sentiment and offsetting concerns that had driven a recent risk-off environment. However, the gains in Australia and South Korea were unable to prevent Japan’s losses from pulling down broader regional performance, leaving MSCI’s Asia-Pacific index flat for the day.
Japan’s Topix index dropped by 1%, driven by a sharp rise in the yen, which gained strength against the U.S. dollar earlier in the week. Investors are weighing the potential political consequences of the weekend’s election, which may see Japan’s ruling coalition face its first major loss in the lower house of parliament since 2009. Such an outcome could destabilize the yen and negatively impact Japanese stocks, according to market analysts.
Governor Kazuo Ueda of the Bank of Japan (BOJ) addressed the media ahead of the election, signaling that the central bank is unlikely to raise interest rates next week. His comments were largely in line with expectations, as most BOJ observers anticipate no significant policy shifts this month. This dovish stance has contributed to the recent weakening of the yen, although it remains resilient as investors brace for potential political turbulence.
In contrast, Australia’s S&P/ASX 200 rose 0.3%, buoyed by improved investor sentiment as Treasury yields retreated for the second consecutive day. The decline in U.S. Treasury yields has provided a temporary reprieve for equity markets globally, as traders reevaluate their outlook on interest rates amid heightened economic and political uncertainty in the U.S.
South Korea’s markets also benefited from the improved environment. The KOSPI index closed higher, as optimism surrounding easing bond yields and continued resilience in the technology sector helped lift stocks. Positive sentiment in South Korea and Australia was enough to keep the MSCI Asia-Pacific Index stable, despite Japan’s underperformance.
In the U.S., futures for the S&P 500 were little changed, following a modest 0.2% gain in the index on Thursday. The tech-heavy Nasdaq 100 surged by 0.8%, largely driven by a strong earnings report from Tesla Inc., whose shares soared 22%. Tesla’s robust performance added momentum to the broader technology sector, contributing to a positive market outlook, even as concerns persist about the Federal Reserve’s policy trajectory and the upcoming U.S. presidential election.
Investors are closely watching corporate earnings for signals about the health of the broader U.S. economy. United Parcel Service Inc. (UPS), often viewed as a barometer of economic activity, posted a 5.3% jump after reporting its return to sales and profit growth, giving the market a positive indicator of the resilience of consumer demand and business activity. However, results from IBM and Honeywell International Inc. were less inspiring, indicating that volatility may persist as more earnings are announced.
The decline in Treasury yields was a major focus for markets on Friday, with the yield on the 10-year U.S. Treasury note falling for a second day, down two basis points to 4.19%. Earlier in the week, Treasury yields had surged, driven by hawkish expectations surrounding the Federal Reserve’s future interest rate decisions. However, traders are now reassessing their expectations for rate cuts, which has provided some relief to equity markets.
Similarly, yields on Australian and New Zealand bonds followed suit, reflecting a broader reassessment of interest rate outlooks across global markets. Australia’s 10-year bond yield dropped four basis points to 4.41%, while New Zealand bonds also saw declines, in line with shifting market sentiment.
Money markets are currently pricing an 85% chance of a Federal Reserve rate cut by a quarter-point next month, with further easing expected into 2025. By the end of 2025, markets anticipate 135 basis points of cuts as the U.S. economy grapples with the implications of tight monetary policy, which has so far managed to cool inflation but has left lingering concerns about economic growth.
The upcoming U.S. presidential election continues to weigh on market sentiment. Polls show a tight race between Donald Trump and Kamala Harris, particularly in swing states that could determine the outcome of the election. With election uncertainty on the horizon, traders are preparing for potential volatility, especially in the event of contested results or a shift in fiscal policy depending on the winner.
Carie Li, a global market strategist at DBS Bank in Hong Kong, shared her outlook on the dollar, predicting that after the election, the U.S. dollar index could trend lower, regardless of the winner. She anticipates that the Federal Reserve will maintain an accommodative stance, cutting interest rates further in 2024 to support economic activity.
In the commodities market, West Texas Intermediate crude rose 0.3% to $70.39 a barrel after a sharp decline on Thursday. Concerns about oversupply have tempered the oil market’s reaction to escalating geopolitical tensions in the Middle East, where Israel has been preparing a potential retaliatory strike against Iran. For now, the oversupply narrative continues to dominate, keeping oil prices in check despite risks of a broader conflict.
Meanwhile, gold prices were steady on Friday, holding near $2,730.51 an ounce. The precious metal edged higher on Thursday as declining Treasury yields bolstered demand for safe-haven assets. Investors are keeping a close watch on geopolitical developments, but gold has seen relatively muted movement this week.
On the currency front, the U.S. dollar remained steady, poised to record its fourth straight weekly gain. The Japanese yen traded slightly lower after rallying on Thursday, ending Friday’s session at 151.80 per dollar. The euro and the offshore yuan were largely unchanged, with the euro trading at $1.0823 and the offshore yuan down 0.1% at 7.1317 per dollar.
In China, fiscal policy measures aimed at countering deflationary pressures have drawn scrutiny from economists and international observers. While Beijing has implemented a range of initiatives to stimulate demand, some experts believe more aggressive action is needed to stave off the economic slowdown. Krishna Srinivasan, head of the Asia-Pacific department at the International Monetary Fund, commented that the Chinese government “has to spend more” to address the property sector’s downturn and relieve pressure on consumer prices.
China’s economic challenges continue to weigh on market sentiment across Asia, but there were some positive developments in the region. Notably, Taiwan Semiconductor Manufacturing Co. (TSMC) reported strong production yields at its Arizona facility, outperforming similar plants in Taiwan. This progress could bolster sentiment surrounding the global chip industry, which has been central to both economic recovery and geopolitical tensions in the region.
Looking ahead, markets are bracing for several key economic reports that could provide greater clarity on the trajectory of interest rates and the broader economy. In the U.S., upcoming reports on durable goods orders and University of Michigan consumer sentiment will be closely watched for signs of strength or weakness in consumer demand and business investment.
Analysts, including Tom Essaye of The Sevens Report, described the recent flow of economic data as a “Goldilocks” scenario—neither too hot nor too cold—which has helped maintain a positive outlook for both stocks and bonds. As long as economic data continues to align with expectations, investors are hopeful that markets can avoid the worst-case scenarios of stagflation or a significant slowdown.
However, as Daniel Skelly of Morgan Stanley’s Wealth Management Market Research & Strategy team cautioned, there is still potential for volatility as corporate earnings season continues and the U.S. election draws near. While the longer-term outlook for equities remains solid, investors should be prepared for possible short-term disruptions.
- Stocks: S&P 500 futures were little changed. Japan’s Topix fell 1%, Australia’s S&P/ASX 200 rose 0.3%, Hong Kong’s Hang Seng gained 0.6%, and the Shanghai Composite was flat.
- Currencies: The Bloomberg Dollar Spot Index was steady, with little movement in the euro, yen, or yuan.
- Cryptocurrencies: Bitcoin fell 0.4% to $67,900.57, while Ether slipped 0.8% to $2,516.65.
- Bonds: The U.S. 10-year Treasury yield declined two basis points to 4.19%. Australian and New Zealand yields also fell.
- Commodities: WTI crude oil rose 0.3% to $70.39 per barrel, and gold was steady at $2,730.51 an ounce.
As investors digest these developments and await further economic data, the balance between growth, inflation, and monetary policy will continue to shape global markets.
