Equities across Asia experienced sharp fluctuations on Thursday as investors weighed the impact of a depreciating yen and a probable U.S. interest rate cut expected next month. The uncertainty drove mixed outcomes in the Asian stock markets as investors assessed regional economic policies, currency shifts, and the likelihood of renewed stimulus measures.
In Japan, South Korea, and Australia, stock markets saw moderate gains, buoyed by hopes of economic resilience and tempered inflation risks. However, Chinese and Taiwanese stocks dipped amid investor concerns over slower-than-expected economic stimulus in China, reflecting a cautious sentiment across sectors. Hong Kong’s Hang Seng Index also fell, although the exchange remained operational despite severe weather warnings, highlighting a resilient yet cautious market mood in the region.
In the U.S., markets seemed to pause from recent gains, with the S&P 500 remaining flat and the tech-focused Nasdaq 100 dipping by 0.2%. The stability—or slight decline—of U.S. equities reflects a wait-and-see approach, especially as the post-election market rally showed signs of losing steam amid renewed inflation data and the potential for Fed intervention.
The chipmaking sector, a critical component of the Asian and global technology supply chain, faced fresh pressure as shares fell across the region. Taiwan Semiconductor Manufacturing Co. (TSMC), a significant player and index contributor, experienced a drop of nearly 1%, reflecting the broader market’s unease. Meanwhile, South Korea’s SK Hynix saw a steeper decline, with shares falling by 4.8%, as concerns over U.S. policy under President Donald Trump and the future of international trade agreements weighed on the sector.
The tech sector has been highly sensitive to geopolitical factors and tariff policy, particularly with Trump’s pledges to reassess trade agreements and consider new tariffs. Analysts note that further tariffs on electronics or supply chain disruptions could have lasting repercussions on Asian tech companies’ profits, as well as on the global supply of semiconductor products, which have been central to the digital economy.
Chinese equities, generally expected to fluctuate within a stable range, are showing signs of limited growth potential as policymakers remain cautious about aggressive stimulus measures. Recent statements from Chinese officials indicate that the country’s economic stimulus may be reactive, focusing on addressing specific challenges rather than pushing for accelerated growth.
Kaanhari Singh, Head of Asia Cross Asset Strategy at Barclays, highlighted this approach on Bloomberg Television, noting, “China’s fiscal stimulus could be reactive rather than proactive. The broad dollar higher theme is what has been driving risk in the region across FX and equities.” Singh’s comments underscore a sentiment that Chinese policymakers may avoid large-scale stimulus in favor of targeted interventions, potentially stabilizing but limiting the scope for significant market gains.
On the macroeconomic front, U.S. consumer price data aligned with expectations on the surface but revealed a three-month annualized core rate uptick. The data has increased the likelihood of a December rate cut by the Federal Reserve, with traders boosting the probability to approximately 80%, up from 56% earlier in the week.
The nuanced inflation data led to short-term bond yields falling, with the two-year Treasury yield dropping by five basis points to 4.29%, while the 10-year yield rose slightly, marking a three-day increase to levels unseen since July. This subtle shift in bond yields highlights a mixed market response, as investors prepare for possible adjustments in Fed policy to maintain economic stability and counter inflation risks.
The U.S. dollar index remained largely steady, consolidating gains from earlier in the week. Meanwhile, the yen continued its descent against the dollar, reaching its weakest point since July. This sustained decline has brought the yen close to levels that previously prompted intervention from Japanese authorities to stabilize the currency.
Japan’s top foreign exchange official issued a warning regarding the yen’s recent volatility, citing the risks of rapid, one-sided movements in the currency markets. A weaker yen, while beneficial for Japan’s export-driven economy, raises concerns over inflationary pressures on imported goods and could lead to increased costs for Japanese consumers and businesses reliant on imported energy and raw materials.
China made a successful return to the dollar bond market, attracting bids exceeding $40 billion for its first issuance since 2021. The issuance, amounting to 20 times the bonds on offer, drew robust interest from domestic investors seeking higher returns and leveraging tax exemptions on these purchases. The strong demand signals growing confidence in Chinese financial assets among local investors, even as global conditions remain volatile.
In China’s tech sector, Tencent Holdings emerged as a bright spot, with shares rising by up to 2.8% after the tech conglomerate reported earnings surpassing expectations. Tencent’s strong performance, coupled with signs of economic improvement following recent government stimulus measures, fueled optimism about the sector’s resilience amid broader market challenges.
Australia’s labor market showed stability, with the unemployment rate holding steady at 4.1%, in line with expectations. In contrast, additional data releases from South Korea and Thailand, including money supply and consumer confidence indices, are awaited for further insights into regional economic conditions and spending patterns.
Seema Shah, Principal Asset Management’s Chief Strategist, suggested that the economic landscape still supports the possibility of a Fed rate cut in December. Shah remarked, “A December cut is still in the cards. A hotter-than-expected inflation number could have convinced the Fed to stand pat at its next meeting,” underscoring the delicate balancing act central banks face in aligning monetary policy with economic realities.
Several Federal Reserve officials have expressed uncertainty regarding the optimal interest rate level necessary to stabilize the U.S. economy without overcorrecting. As inflation remains persistent, the Fed finds itself in a precarious position, striving to avoid triggering a recession while ensuring price stability.
Josh Jamner, an analyst at ClearBridge Investments, summarized the sentiment, stating, “The in-line CPI print shows that while substantial progress has been made in the fight against elevated inflation, the ‘last mile’ is proving more challenging.” This recognition of lingering inflation hurdles has left investors closely watching future CPI reports and central bank comments to gauge the Fed’s next move.
Attention now shifts to the U.S. Producer Price Index (PPI) data, set for release later Thursday, expected to reflect year-over-year increases in both headline and core producer prices for October. These figures, coupled with jobless claims data, will provide further insight into the health of the U.S. economy and the likelihood of rate adjustments.
Additional key data points on the horizon include China’s retail sales and industrial production figures on Friday, as well as U.S. retail sales, Empire manufacturing data, and industrial production numbers. Each release will be scrutinized for signals about global economic growth and potential policy responses from central banks worldwide.
In cryptocurrency markets, Bitcoin surged past $93,000 for the first time, continuing an upward trajectory as traders embraced former President Trump’s verbal support for digital currencies. The cryptocurrency held at approximately $90,000 in Asian trading on Thursday, underscoring growing investor confidence amid heightened interest from both retail and institutional investors. Ether also saw gains, rising 0.8% to reach $3,180, further reflecting the positive sentiment within the cryptocurrency market.
In commodities, West Texas Intermediate (WTI) crude oil slipped 0.2% to $68.28 per barrel, reversing gains from earlier in the week, as traders gauged demand against production cuts and geopolitical tensions. Gold prices also fell for a fifth consecutive session, dropping 0.2% to $2,567.05 an ounce, amid a strengthening dollar and cautious investor sentiment.
Several major economic events will influence market trends and investor sentiment:
- Eurozone GDP (Thursday)
- U.S. PPI and jobless claims data (Thursday)
- Fed Speakers, including Jerome Powell, John Williams, and Adriana Kugler (Thursday)
- China Retail Sales and Industrial Production (Friday)
- U.S. Retail Sales, Empire Manufacturing, and Industrial Production (Friday)
- Snapshot of Major Market Movements
- Stocks: S&P 500 futures remained stable; Japan’s Topix rose 0.6%; Australia’s S&P/ASX 200 gained 0.4%; Hong Kong’s Hang Seng dropped 0.2%; Shanghai Composite declined 0.4%.
- Currencies: The Bloomberg Dollar Spot Index was stable; the euro fell 0.1% to $1.0553; the yen decreased 0.3% to 155.87 per dollar; offshore yuan was unchanged at 7.2489 per dollar.
- Cryptocurrencies: Bitcoin increased 1.4% to $89,891.51; Ether gained 0.8% to $3,180.02.
- Bonds: U.S. 10-year yield rose by two basis points to 4.47%; Japan’s 10-year yield advanced 1.5 basis points to 1.055%; Australia’s 10-year yield rose by four basis points to 4.70%.
- Commodities: WTI crude decreased 0.2% to $68.28 per barrel; spot gold dropped 0.2% to $2,567.05 an ounce.
