The Asian stock market experienced some volatility on Friday as mixed data from China and Japan conflicted with the hawkish stance of the Federal Reserve (Fed) and the positive performance of S&P500 Futures. Notably, the quarter-end flows have also posed a challenge for equities amid a cautious atmosphere ahead of the release of the US Core Personal Consumption Expenditure (PCE) Price Index for May, which is considered the Fed’s preferred inflation gauge.
The MSCI’s index of Asia-Pacific shares, excluding Japan, remained under pressure, dropping 0.08% during intraday trading. In Japan, the Nikkei 225 fell by half a percent, while China-linked shares mostly saw gains. Australian shares were slightly down, but New Zealand’s Auckland exchange led the way with gains. Indian and South Korean markets have been relatively firm, but Indonesian markets have remained lackluster.
Wall Street benchmarks posted gains on the previous day, and S&P500 Futures indicate a minor upside momentum, while US 10-year and two-year Treasury bond yields fluctuate at the highest levels seen since early March. Oil prices have remained firm, but gold has struggled and is hovering around its lowest levels in months.
Market sentiment improved as upbeat US data countered concerns of an impending recession. This optimism has been tempered by hawkish comments from the Fed, which have limited gains for S&P500 Futures and consequently affected Asian stocks. Traders remain worried about the ongoing US-China trade tensions, mixed economic data, and the potential for market interventions in Japan.
Earlier in the day, China’s Manufacturing Purchasing Managers’ Index (PMI) matched market expectations at 49.0 in June, compared to the anticipated 48.8. Additionally, the Non-Manufacturing PMI exceeded analysts’ estimates by rising to 53.2, beating the expected 50.2. In Japan, the Tokyo Consumer Price Index (CPI) eased to 3.1% year-on-year in June, falling short of the 3.8% expectation and the previous reading of 3.2%. The preliminary Industrial Production figures for May showed a decline of -1.6% month-on-month, contrasting with the 0.7% growth seen previously and the market forecast of -1.0%. However, yearly Industrial Production figures were positive, reaching 4.7% compared to -0.7% in the previous period. The Unemployment Rate for June remained unchanged at 2.6%.
Mixed headlines regarding US-China relations have also influenced market sentiment. US Treasury Secretary Janet Yellen expressed a desire to visit China to re-establish contacts, but she also emphasized a willingness to take actions to protect national security interests even at an economic cost. The US restrictions on China’s AI industry players and Beijing’s adjustments to foreign policy, allegedly aimed at countering US influence, continue to test investor confidence.
Amidst the lack of clarity and cautious mood before key data releases and events, Asian investors have remained inactive and markets have been somewhat subdued. The ongoing economic and geopolitical factors will likely continue to drive market sentiment and influence the performance of Asian stocks.
