Asian stock markets are poised for a positive performance, drawing inspiration from a robust rally in US equity markets where major indices achieved new closing highs. This optimism is primarily driven by the Federal Reserve’s confirmation of its forecast for three interest rate reductions in 2024. The upbeat mood was further amplified by Fed Chair Jerome Powell’s minimization of the recent uptick in inflation figures for January and February. Notably, sectors sensitive to interest rates led the rally, with the small-cap index showing exceptional performance. A similar trend is anticipated in Asia for high-beta stocks and sectors, supported by lower US yields and a weaker dollar, coupled with the FOMC moving out of focus. This environment fosters increased risk-taking and unwinding of hedging positions, potentially enhancing the appeal of Asian equities.
On the macro front, the Japanese Yen warrants attention as it regained some of its earlier losses, albeit closing the session on a weaker note. This rebound was sparked by reports hinting at possible rate increases in the future, likely in July or October. The media may continue to hint at a more aggressive stance from the Bank of Japan (BoJ) in the upcoming weeks, especially if inflation data supports a tighter monetary policy. Additionally, market participants are vigilant for any indications of intervention by Japanese authorities to address the Yen’s weakness, which has pushed the USD/JPY exchange rate near last year’s highs. Looking forward, the focus shifts to key US economic indicators such as jobless claims, the Philly Fed manufacturing index, and preliminary Purchasing Managers’ Index (PMI) readings. These data points will offer deeper insights into the economic landscape. Anticipation of weaker data may lead traders to place dovish bets in the next session, potentially favouring equities as global central bankers lean towards a more accommodative stance.
