Asian Markets Mostly Rise Amid US Recession Worries and Focus on Upcoming Data

Market Overview

Asian markets showed resilience on Monday, recovering from last week’s turbulence driven by concerns over a potential US recession. Investors are now turning their attention to the release of crucial inflation and retail data, which could influence future Federal Reserve decisions.

Recovery from Recent Decline

Following a sharp decline triggered by disappointing US job creation figures, equities rebounded, ending Friday on a positive note. The recovery was supported by a report indicating fewer unemployment benefit claims than expected, easing fears of a contracting US economy.

Upcoming Economic Indicators

The focus this week will be on the consumer price index (CPI) and retail sales reports. These indicators could impact the Federal Reserve’s decisions on interest rates. Expectations are that the Fed may lower borrowing costs by 25 basis points next month and potentially once more before January, due to signs that inflation is under control.

Divergent Views on Interest Rates

Fed officials are divided on the future path of interest rates. Governor Michelle Bowman expressed caution, fearing that inflation might rebound and preferring not to cut rates prematurely. In contrast, Boston Fed chief Susan Collins suggested that rate cuts could begin soon if data shows continued progress in controlling prices.

Stephen Innes warned of potential market turmoil if inflation rises alongside lower retail sales, a combination that could exacerbate fears of stagflation. A higher inflation reading could also further impact market sentiment, following recent job growth concerns.

Market Movements

All three major US indexes ended positively on Friday. On Monday, several Asian markets, including Hong Kong, Sydney, Seoul, Mumbai, Taipei, Jakarta, and Wellington, experienced gains. European markets also saw increases, with London, Paris, and Frankfurt rising. However, Shanghai, Singapore, and Manila recorded slight declines. Tokyo was closed for a holiday.

Currency and Policy Outlook

The yen weakened after last week’s fluctuations, which saw it reach a six-month high against the dollar due to weaker US jobs data and Fed rate cut expectations. The Bank of Japan’s recent rate hike and future plans for additional hikes contributed to market stabilization.

Luca Santos from ACY Securities noted that while current stability may be temporary, there are underlying uncertainties. Market sentiment reflects expectations of significant rate cuts by the Fed, with predictions of a cumulative 100 basis points this year and another 100 in 2025, signaling a need for more aggressive monetary policy to support economic growth.