Moving markets today: Asian stocks dip on US tech slump; two-year Treasury yield hits four-month low; Focus turns to US producer prices
The S&P 500 halted its recent streak of gains after lower-than-expected inflation data for June prompted traders to anticipate potential interest rate cuts by the Federal Reserve later this year. Asian markets did not see a similar rally on Friday, following Wall Street’s lead where investors shifted focus towards smaller companies following the US inflation report. Oil prices rose in early Asian trading due to strong summer demand and easing inflation concerns in the US, the world’s largest oil market, which boosted investor confidence. Meanwhile, gold prices eased slightly on Friday but were poised for a third consecutive weekly increase, buoyed by expectations that the Fed may begin cutting rates in September following the subdued inflation figures. The cooling inflation data also drove the two-year Treasury yield to its lowest level in four months. Japan’s top currency official indicated readiness to intervene in the currency markets as necessary regarding the yen’s movements. In the US, the Department of Labor is set to release producer price figures for June. As the second-quarter earnings season kicks off, starting with major banks’ reports on Friday, there will be scrutiny over whether high-priced mega-cap companies can justify their valuations and sustain recent strong performance. The FTSE 100 closed higher on Thursday, with futures indicating a positive start for Friday’s trading session.
Here are five key takeaways for your day.
China’s June exports surge 8.6 per cent, imports decline 2.3 per cent
According to recent customs data released on Friday, China experienced an 8.6 per cent year-on-year increase in exports in June, while imports declined by 2.3 per cent. Economists had predicted slightly lower growth in exports at 8.0 per cent and a smaller decrease in imports at 2.8 per cent, compared to the previous month’s figures of 7.6 per cent and 1.8 per cent respectively.
These export numbers, which surpassed expectations, offer a positive note for China’s economy amidst ongoing challenges. Despite government efforts to stimulate domestic demand following the pandemic, concerns linger over a prolonged slump in the property market and uncertainties surrounding job security and wages, which continue to weigh on consumer confidence.
US inflation dip drives two-year Treasury yield to four-month low
According to the Bureau of Labor Statistics report on Thursday, US inflation fell more sharply than anticipated to 3 per cent, which is seen as a positive indicator for the Fed’s policy considerations.
Traders in the futures market responded by increasing their bets on multiple rate cuts this year, with expectations now pricing in two to three reductions and the first one expected in September.
As a result, the two-year Treasury yield, which reflects market expectations for interest rates, dropped to a four-month low of 4.1680 per cent.
Japan’s chief currency diplomat affirms action plan for yen as needed
On Friday, Japan’s leading currency official indicated that the authorities are ready to step in and take necessary actions in the foreign exchange market.
This comment came after a significant overnight spike in the yen, which led to market speculation about possible currency intervention. The yen surged nearly 3 per cent on Thursday, its largest daily increase since late 2022, following US consumer price data that revived hopes of a Federal Reserve rate cut in September.
Recently, Japanese authorities have made it a practice not to confirm or deny any interventions in the currency market.
What’s coming up
Wall Street is gearing up for a busy earnings season, starting with reports from Citigroup, JP Morgan, and Wells Fargo on Friday.
Inflation remains a hot topic on both sides of the Atlantic. In the US, the Department of Labor will release June’s producer price data, and the University of Michigan will share preliminary results of its July consumer confidence survey, both of which could influence the markets.
Meanwhile, in Europe, consumer price data for June will be released for France and Spain.
Asian shares poised for weekly gains
The S&P 500 dropped 0.88 per cent to close at 5,584.54, and the Nasdaq fell 1.95 per cent to 18,283.41, ending its seven-day streak of record highs. The Dow Jones Industrial Average edged up by 0.08 per cent to 39,753.75 points.
This marked the Nasdaq’s biggest single-day drop since April 30. Despite signs of easing inflation, major tech stocks stumbled: Microsoft and Amazon both fell over 2 per cent, Meta Platforms slipped about 4 per cent, and Tesla plummeted 8.4 per cent following news of a two-month delay in its robotaxi launch.
Apple, after hitting a record high on Wednesday, declined 2.3 per cent even as BofA Global Markets raised its price target due to expected strong iPhone sales driven by new AI features.
Futures for the S&P 500 were stable, Nasdaq futures dipped slightly by 0.02 per cent, and EURO STOXX 50 futures remained flat.
In the UK, the FTSE 100 rose 0.36 per cent on Thursday, with predictions for a 0.10 per cent gain on Friday, reaching 8,256.0 points.
In Asia, Japan’s Nikkei N225 fell 2.3 per cent dragged down by tech stocks, and South Korea’s tech-heavy Kospi Index also saw declines.
In contrast, Australian shares advanced, and Hong Kong’s Hang Seng rose by 1.72 per cent. On the Chinese mainland, the Shanghai Composite and the Shenzhen Composite dropped by 0.09 per cent and 0.29 per cent, respectively.
In the commodities market, oil prices climbed during early Asian trading on Friday, buoyed by strong summer demand and lower inflation in the US Brent futures increased by 0.4 per cent to $85.74 per barrel, and US West Texas Intermediate (WTI) crude rose by 0.56 per cent to $83.08 per barrel.
Meanwhile, gold edged down 0.07 per cent to $2,413 an ounce.