Volatile stocks stabilise in anticipation of job reports

Asia-Pacific Markets Respond to Powell’s Comments

Quick Look:

  • Mixed Asia-Pacific Markets: Reactions varied after U.S. Fed Chair Jerome Powell hinted at a potential rate cut in September;
  • Japan’s Market Decline: Nikkei 225 fell 2.49%, impacted by a stronger yen and higher borrowing costs;
  • Australia’s Market Gains: S&P/ASX 200 reached new highs, reflecting investor confidence;
  • China and Hong Kong Diverge: CSI 300 down 0.66% on weak manufacturing data; Hang Seng slightly di, but GDP grew 3.3%;
  • Positive U.S. Market Response: S&P 500 and Nasdaq surged as the Fed kept rates unchanged.

Asia-Pacific markets presented a mixed picture on Thursday following comments from U.S. Federal Reserve Chair Jerome Powell. Powell suggested a potential rate cut in September if inflation data continued to show favourable trends. This news had varied impacts across the region, with some markets buoyed by optimism and others weighed down by local factors.

Japan’s Market Takes a Hit

In Japan, the Nikkei 225 plummeted by 2.49%, closing at 38,126.33. The broader Topix index also faced a significant drop of 3.24%, ending at 2,703.69. These declines were primarily driven by losses in the real estate sector and heavyweight exporters, compounded by a strengthening yen. A stronger yen reduces the competitiveness of Japanese exports, while higher borrowing costs negatively impact real estate companies.

The Bank of Japan’s recent decision to raise its benchmark interest rate to around 0.25%, the highest level since 2008, played a significant role in these market movements. Following this rate hike, the yen fell below the 150 level against the dollar, strengthening by 0.9% to trade at 148.61. Additionally, the finance ministry disclosed that it spent a staggering 5.53 trillion yen ($36.8 billion) on foreign exchange intervention from late June to late July, a move aimed at stabilizing the currency.

Mixed Signals from Other Major Markets

In contrast to Japan, Australia’s S&P/ASX 200 touched new all-time highs, gaining 0.28% to end at 8,114.7. This upward movement reflects investor confidence in the Australian market amidst a backdrop of global financial uncertainty.

Meanwhile, South Korea’s Kospi increased by 0.25%, closing at 2,777.68, while the smaller-cap Kosdaq saw a more substantial increase of 1.29% to end at 813.53. South Korea’s export data for July provided a mixed bag of news; exports rose by 13.9% year-on-year to $57.49 billion, marking the fastest pace in six months, yet fell short of the 18.4% increase anticipated by economists.

China and Hong Kong: Diverging Economic Data

Over in China, the CSI 300 index dropped by 0.66% to close at 3,419.27. Disappointing manufacturing data influenced this decline, as the Caixin survey conducted by S&P Global reported a contraction in factory activity. The manufacturing PMI for July was recorded at 49.8, below the expansionary threshold of 50 and significantly lower than the expected 51.5.

Meanwhile, Hong Kong’s Hang Seng index dipped by 0.13% in its final trading hour. Despite this, the region reported a 3.3% year-on-year GDP growth in the second quarter, surpassing the 2.7% rise anticipated by economists. This positive GDP figure reflects some resilience in Hong Kong’s economy despite broader market challenges.

U.S. Markets React Positively

Across the Pacific, U.S. markets saw a robust rally overnight. The Federal Reserve’s decision to keep interest rates unchanged was well-received by traders. The S&P 500 surged by 1.58% to close at 5,522.30, while the Nasdaq Composite soared by 2.64% to 17,599.40, marking the best session since February for both indexes. The Dow Jones Industrial Average also saw a modest gain, adding 99.46 points, or 0.24%.

Looking Ahead

Asia-Pacific investors will closely monitor vital economic indicators and central bank policies. The mixed performance across these markets highlights the varying impacts of global and local economic developments. With the potential for a U.S. rate cut on the horizon, contingent on favourable inflation data and ongoing adjustments in Asian economies, the financial landscape remains dynamic and complex.

The recent movements in the Asia-Pacific markets underscore the interconnected nature of global finance. While some regions benefit from positive local economic news, others struggle with challenges such as currency strength and export competitiveness. Market participants must always stay vigilant and adaptable in navigating these evolving conditions.

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