Asian markets faced challenges on Tuesday (12 September) in their attempt to follow the positive trends in Wall Street and Europe. Investors are anxiously awaiting the release of US inflation data, while lingering concerns about China’s economy continue to weigh on sentiment.
The upcoming consumer price index (CPI) report holds significant importance as it influences the Federal Reserve’s policy decisions. The next Fed meeting is expected to result in interest rates being maintained, but market participants will closely analyze the accompanying statement for insights into the central bank’s future plans.
Equities have encountered difficulties this month due to fears that strong economic indicators and a robust job market may prompt the Fed to implement further tightening measures this year to combat inflation. The situation is further complicated by mixed signals from Fed officials, with some advocating for rate hikes and others favoring a wait-and-see approach to gauge the impact of over a year of rate adjustments.
Fed Chairman Jerome Powell has emphasized that decisions will be data-driven, causing investors to interpret weak economic data as positive news for the future interest rate outlook.
Chris Larkin, Managing Director of Trading and Investing at E*Trade from Morgan Stanley, noted, “This week is more likely to be a ‘good news is good, bad news is bad’ story. The market’s ability to rebound in the near term could hinge on this week’s inflation numbers, especially Wednesday’s CPI.”
Leading economists from major global banks have expressed the view that the Fed is unlikely to implement further rate hikes and may begin reducing borrowing costs in the new year. They also predicted that the United States will avoid a recession. Simona Mocuta, Chair of the 14-member American Bankers Association’s Economic Advisory Committee, stated, “Given both demonstrated and anticipated progress on inflation, the majority of the committee members believe the Fed’s tightening cycle has run its course.”
Meanwhile, tech firms led a surge in all three major indexes on Wall Street, while Asian markets displayed mixed performance. Tokyo, Taipei, and Manila saw slight gains, but Hong Kong, Shanghai, Seoul, Sydney, Singapore, Wellington, and Jakarta all experienced declines.
Concerns about China’s economy continue to dampen investor sentiment, despite some signs of improvement such as a return to inflation and a smaller-than-expected decline in exports and imports. There are calls for the Chinese government to unveil a substantial stimulus package akin to the one implemented during the 2008 global financial crisis to boost growth and support the property sector.
In the currency markets, the Japanese yen slightly weakened against the US dollar after receiving a boost from comments by the Bank of Japan’s head, hinting at a potential shift away from the current ultra-loose monetary policy.
