Asian shares reached a five-month high on Thursday, driven by optimism that the U.S. Federal Reserve’s tightening cycle had come to an end and that the economy was headed for a soft landing. This positive sentiment also boosted the outlook for global growth and risk appetite.
Investors are eagerly awaiting the European Central Bank’s announcement later in the day, as it is also expected to approach the end of its tightening campaign. Similarly, the Bank of Japan’s meeting on Friday is anticipated to maintain its ultra-loose monetary policy.
Date: July 27, 2023
Place: New Delhi, India
The upbeat mood is expected to extend to Europe, with EUROSTOXX 50 futures and FTSE futures showing gains. In the U.S., Nasdaq futures rose, supported by a strong after-hours performance of Meta Platforms (META.O), Facebook’s parent company, which reported increased advertising revenue.
In the Asian market, MSCI’s broadest index of Asia-Pacific shares outside Japan reached a five-month high with a 1% increase, while Japan’s Nikkei advanced 0.7% to a three-week top. Hong Kong’s Hang Seng index rallied 1.4%, driven by a 4.9% surge in Chinese property stocks, fueled by hopes of additional support for the struggling sector following a top-level Politburo meeting.
The U.S. Federal Reserve raised its interest rates by a quarter-point as expected, but Chairman Jerome Powell stated that the Fed no longer expects a recession. This announcement contributed to the belief that the Fed’s tightening cycle is now complete.
David Chao, a global market strategist at Invesco, expressed the opinion that the Fed has reached the peak of its cycle and expects a positive re-pricing of recession risks, along with anticipation of an economic recovery starting later in the year. Futures indicate a slim 20% chance of a surprise quarter-point rate increase by the central bank in September. Additionally, they are pricing in substantial rate cuts of 125 basis points by the end of the following year.
On Wall Street, stocks closed relatively unchanged after the Fed’s rate hike, with the Nasdaq showing a decline due to the drag from technology stocks.
Looking ahead, the European Central Bank is widely expected to raise interest rates by a quarter-point on Thursday, with the expectation that this might be followed by at most one more hike. However, concerns about inflation could potentially pressure policymakers to maintain higher interest rates for a longer period.
The Bank of Japan’s meeting on Friday is also a significant event, with prevailing sentiments suggesting that policymakers will hold steady, according to a Reuters poll.
The Japanese yen strengthened against the dollar, with overnight dollar/yen implied volatility reaching its highest level since March.
The U.S. dollar remained under pressure in Asian trading, declining 0.3% against a basket of major currencies. Risk-sensitive currencies like the Australian dollar and New Zealand dollar were up 0.8%.
In the bond market, treasury yields were mostly steady, with the 10-year Treasury note’s yield at 3.8610% and the two-year yield at 4.8329%.
Oil prices were higher, with Brent crude futures up 0.9% at $83.69 per barrel and U.S. West Texas Intermediate crude futures rising 1% to $79.59.
Gold prices edged up 0.2% to $1,976.18 per ounce.
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Sources- The Print, Reuters, Financial Express
