FX168 Financial News Agency (Asia-Pacific) reported that on Thursday (January 16), Asian stock markets followed Wall Street's rise, while the dollar softened due to a slowdown in core inflation in the USA, keeping the market's expectations for potential interest rate cuts by the Federal Reserve in focus. Meanwhile, the yen rose to its highest level in a month due to expectations of an interest rate hike.
The MSCI Asia-Pacific index (excluding Japan) rose by 1.4%. Chinese Blue Chips increased by 0.67%, while the Hong Kong Hang Seng Index climbed by 1.5%. #Decision Analysis#
Taiwan's Technology stocks rose by 2%, as investors anticipated the Earnings Reports from Taiwan Semiconductor, the highest valued company in Asia. Taiwan Semiconductor's Net income for the fourth quarter grew by 57% year-on-year, exceeding expectations, significantly boosting investor confidence as they look forward to the continuation of the artificial intelligence (AI) hardware spending boom into 2025. The company announced on Thursday that its fourth-quarter Net income was 374.7 billion TWD (11.4 billion USD), with an estimated average of 369.8 billion TWD; the company's revenue announced last week also surpassed expectations.
On Wednesday on Wall Street, all three major stock indexes recorded their largest single-day percentage gains since November 6, when strong Earnings Reports after the presidential election in the USA boosted market sentiment, especially from JPMorgan, Blackrock, and Goldman Sachs.
Overnight data indicated that the Consumer Price Index (CPI) in December rose by 2.9% year-on-year, in line with expectations, up from 2.7% in November. However, core inflation, excluding food and Energy prices, increased by 3.2%, which was lower than the expected 3.3%.
Investors were particularly encouraged by the latest inflation data, as Tuesday's release showed that US producer prices rose moderately in December.
"This report supports the view that the market's expectations for interest rate cuts this year may be too optimistic, and if the data declines again, additional easing measures may be reconsidered," said Kyle Chapman, Forex market Analyst at Ballinger Group.
The inflation report led traders to price in the likelihood of the Federal Reserve cutting interest rates twice before the end of this year as being nearly balanced.
This caused the USD to lose some momentum against most currencies, with the USD Index (which measures the exchange rate of the USD against six major currencies) falling to 109.03.
We expect the Federal Reserve to adopt a dovish rate-cutting cycle, although we believe that short-term hawkish sentiment has been overstated,” said Eric Robertsen, the global research head and chief strategist of Standard Chartered Bank, at a media roundtable in Singapore. “We see the USD rising, but the path may be volatile,” he noted, if tariff policies lead to a slowdown in economic growth in other regions, the strength of the USD will be tested.
Investor focus is shifting towards the policies of incoming President Trump, who will return to the White House on Monday, and recent media reports suggest that the new government will adopt a gradual implementation of tariffs, alleviating some concerns. Analysts expect Trump's policies to stimulate economic growth, but they may also exacerbate price pressures.
The Japanese Yen remains strong, reaching its highest point in nearly a month, as markets bet on the Bank of Japan (BOJ) having over a 70% chance of raising interest rates next week.
Despite our expectation that the typically cautious Governor Ueda will wait for clarity on U.S. trade policy and confirmation of strong wage growth before the March meeting, we acknowledge that a rate hike next week is possible,” said Joseph Capurso, head of international economics at Commonwealth Bank of Australia.
The Japanese Yen traded at 155.675 against the USD, up 0.5% from the morning. The Euro stabilized at 1.02965 USD, while the British Pound dipped slightly to 1.22335 USD.
U.S. Treasury yields fell after the inflation data was released, with the benchmark 10-year U.S. Treasury yield dropping by 13.5 basis points to 4.653%. It traded at 4.661% during the Asian session.
In the energy market, oil prices rose as U.S. crude oil inventories unexpectedly dropped sharply, further intensifying concerns about potential supply disruptions due to new sanctions on Russian energy trade by the USA.
Crude Oil Product in the USA rose by 0.29% to $80.27 per barrel, while Brent Crude Oil increased by 0.17% to $82.17 per barrel. Investors will continue to monitor the latest developments in the Middle East, particularly as Israel has intensified airstrikes on Gaza following an announcement of a ceasefire and hostage release agreement, ending a conflict that has lasted for 15 months.
Spot Gold reached a one-month high of $2702.09 during the Asian session, driven by changes in interest rate expectations.
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