The S&P 500 (.SPX) continued its upward trajectory on Thursday, advancing by 20% from its October 12 closing low. This significant milestone has led some market participants to declare the start of a new bull market. In Friday's morning sessions, Asian equities followed suit, with hopes for economic stimulus in China and the S&P 500's entrance into a bull market bolstering investor sentiment.
Mainland China and Hong Kong shares traded within tight ranges as the decline in Chinese producer prices and lackluster consumer prices raised speculation that the government would need to offer additional support. Japanese stocks recovered from a two-day decline, while Australian shares rebounded after experiencing losses in the previous three sessions. South Korean equities reached their highest level since June of the previous year.
However, contracts on US indexes inched lower during early trading in Asia. Treasury yields remained steady after experiencing declines on Thursday. Government bond yields also fell in Australia and New Zealand.
A notable increase in US jobless claims, reaching the highest level since October 2021, suggests that the labour market is starting to cool. This development has helped fuel the tech sector, as tech stocks faced headwinds due to speculation that the Federal Reserve would maintain higher interest rates for a longer period. On Thursday, the S&P 500 gained 0.6%, and the tech-heavy Nasdaq 100 rose by 1.3%, with chipmakers such as Nvidia Corp. and Advanced Micro Devices Inc. leading the gains amid the frenzy surrounding artificial intelligence-linked stocks.
Investors are currently reassessing the trajectory of Fed policy following unexpected rate hikes by central banks in Australia and Canada this week. Traders had already fully priced in another hike by July on Wednesday. However, Krishna Guha from Evercore ISI believes that market reactions based on these central bank actions should fade. Guha emphasizes that the Fed remains the primary driver of pricing decisions, while other central banks are more reactive. The decision by these banks to raise rates is partly influenced by their expectation that the Fed will hike rates once more. Failure to match the Fed's actions could lead to currency depreciation.
In other market news, the yen weakened slightly after a rally on Thursday, fueled by data revealing that Japan's economy grew faster than expected in the first quarter. The Turkish lira also weakened as President Recep Tayyip Erdogan appointed Hafize Gaye Erkan, a former executive of Goldman Sachs Group Inc. and First Republic Bank, as the new central bank governor. This move suggests a departure from the previous costly intervention strategy, indicating a shift towards more conventional policies.
Turning to the oil market, prices fell in early Asian trade on Friday due to concerns over demand outweighing the potential for tighter supply from global producers. Investors remained skeptical about the United States and Iran striking a nuclear deal. Brent crude futures declined by 0.5%, settling at $75.60 a barrel, while U.S. West Texas Intermediate crude futures dropped by 0.5%, reaching $70.96 a barrel. Both benchmarks had experienced losses of more than $3 earlier in the week but rebounded by around $1 on Thursday after both the U.S. and Iran denied reports of a nearing nuclear deal.
For the week, oil prices were set to record losses of about 1% and mark a second consecutive week of decline. Earlier this week, prices had risen following Saudi Arabia's commitment to deep output cuts. However, gains were offset by rising U.S. fuel stocks and weak Chinese export data.
Satoru Yoshida, a commodity analyst with Rakuten Securities, noted that the market remains skeptical about a U.S.-Iran nuclear deal, causing both upside and downside pressure on prices. While concerns over tighter supply and expectations of higher demand during the U.S. driving season provide support, worries about further U.S. interest rate hikes and slow growth in China's fuel demand present a counterbalance. Yoshida expects oil prices to remain within a range of approximately $3 above and below $70 for WTI in the near term.
On Thursday, both the United States and Iran denied reports of an imminent interim deal that would involve Tehran curbing its nuclear program in exchange for sanctions relief, including permission to export up to 1 million barrels of oil per day. Some analysts suggest that oil prices could experience an uplift if the U.S. Federal Reserve decides to forgo a rate hike at its upcoming meeting on June 13.
Key events :
China PPI, CPI, Friday