Expectations that the Federal Reserve has finished its rate-hiking cycle have aided recent market gains.
Similar to how they ended July, Asian investors started August with gains on all markets as they followed Wall Street’s lead and benefited from a positive outlook for the economy.
In recent weeks, bets that the Federal Reserve will end its cycle of interest rate hikes have been a key driver of purchasing as inflation continues to fall and the economy remains robust.
This has been exacerbated by China’s recent promises of growth-boosting stimulus measures, as a series of data points indicate the country’s post-Covid recovery has nearly peaked.
Traders are keeping a close watch on this week’s earnings from tech giants Apple and Amazon, as well as the US jobs report at the end of the week, which could provide insight into the Fed’s thinking.
The British and Australian central banks are also scheduled to announce rate decisions.
On Monday, Chicago Fed President Austan Goolsbee left open the possibility of pausing or halting interest rate increases at the September meeting of the bank’s policy committee.
Goolsbee told Yahoo! Finance, “So far, we’re on the golden path, and we have to walk that line,” referring to the path of lowering inflation without triggering a significant recession.
He echoed the chief of the Minneapolis Federal Reserve Bank, Neel Kashkari, who described the readings as “quite positive” and referred to the deceleration in inflation as “fantastic news.”
Stephen Innes of SPI Asset Management stated, “As we approach the middle of summer, there is a prevalent belief among the general public that the Federal Reserve has likely completed its final rate hike for the current cycle.”
“This is a result of the obvious decline in inflationary pressures.
Current economic conditions, including decreasing inflation, a halt in Federal Reserve tightening, and steady or increasing growth, may create an ideal situation for the stock market.
Wall Street ended on a positive note, with the S&P 500 reaching its highest level in 16 months.
Moreover, the rally spread to Asia, where Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Singapore, Taipei, and Manila all advanced.
China’s factory activity decreased last month, bolstering expectations that the government will continue to disclose economic support measures.
On Monday, the government unveiled a twenty-point plan to increase consumption, including housing, culture, and tourism.
The announcement was made after top leaders stated in a meeting last week that the economy was facing “new difficulties and challenges” and agreed to “implement precise and effective macroeconomic regulation, strengthen countercyclical regulation, and increase policy reserves.”
Analysts who had predicted another difficult week for markets were revising their forecasts in light of the investors’ generally upbeat disposition.
Michael Wilson at Morgan Stanley was previously pessimistic but now sees more upside potential in the recent rally.
“The obstacles companies have faced—persistent inflation, weak markets, and international sluggishness—are no longer headwinds,” he said.
Now, we are not only experiencing tailwinds heading into 2024 but also less disruptive stock market reactions following earnings reports.
The yen weakened further on currency markets as the Bank of Japan’s decision to ease its grasp on monetary policy failed to provide support.
Observers predict that the central bank’s policy will continue to be significantly more lax than that of other central banks for a while.
Statistical data around 02:30 GMT
- Tokyo – Nikkei 225: UP 0.7 percent at 33,418.53 (break)
- Hong Kong – Hang Seng Index: UP 1.0 percent at 20,283.06
- Shanghai – Composite: UP 0.4 percent at 3,304.99
- Dollar/yen: UP at 142.72 yen from 142.28 yen on Monday
- Euro/dollar: DOWN at $1.0986 from $1.0997
- Pound/dollar: DOWN at $1.2819 from $1.2834
- Euro/pound: UP at 85.70 from 85.67 pence
- West Texas Intermediate: DOWN 0.2 percent at $81.67 per barrel
- Brent North Sea crude: DOWN 0.2 percent at $85.27 per barrel
- New York – Dow: UP 0.3 percent at 35,559.53 (close)
- London – FTSE 100: UP 0.1 percent at 7,699.41 (close)