Image Source: Pixabay
MARKETSThe good mood vibes shifted slightly on Thursday, a day after Wall Street celebrated its strongest performance of the year, fueled by easing inflation concerns and robust bank earnings. U.S. indices fluctuated between minor gains and losses, ultimately closing lower. This downturn in bullish momentum was linked to a mixed set of earnings reports, dampening the earlier enthusiasm.However, the continued retreat of bond vigilantes offered some solace; 10-year yields extended their decline, propelled by weaker-than-expected U.S. retail sales growth from last month—an outcome that could help alleviate inflationary pressures. Adding to the yield retreat, during his Senate confirmation hearing, incoming Treasury Secretary Scott Bessent highlighted the need for fiscal prudence, noting an “astonishing” 40% increase in discretionary spending over the past four years. Additionally, dovish-sounding comments from Fed’s Chris Waller contributed to the softer yield environment, providing a backdrop of less hawkish monetary expectations.On Thursday, bond yields edged down further, with the 10-year Treasury yield dropping to 4.61% from 4.66% the day prior and down from 4.79% on Tuesday. This easing in yields also contributed to nudging the USD/JPY down to the crucial 155 level, bolstered by growing expectations of another Bank of Japan rate hike next week. The BoJ has been actively guiding the market towards this potential outcome, with the caveat that President-elect Trump’s upcoming inauguration does not unleash any significant market shocks.This week’s major takeaway is the easing of excessively hawkish monetary policy concerns. The market consensus has shifted from fearing a hard economic landing to contemplating the odds of a soft landing, turning what was once an early-year dire prediction into a coin-flip scenario. This expectation adjustment may continue to offer relief to investors who have previously been bracing for more hawkish policy moves.
ASIA OPENThe fleeting relief sparked by this week’s unexpectedly mild U.S. and UK inflation data seems to have dissipated in the equity markets. However, Treasury yields and the dollar’s continued descent as the week comes to a better close than many had expected.Friday sees Asian markets opening against this nuanced backdrop. While yields are softening—underscored by Fed Governor Chris Waller’s repeated openness to rate cuts—the lingering doubt remains whether this easing in bond yields and inflation pressures is merely a temporary respite. With President-elect Donald Trump’s inauguration looming on Monday, the sense of caution is palpable.Investors in Asia are understandably cautious. Perhaps they will hedge their bets and reduce exposure to volatile assets ahead of the weekend, extending into a three-day break in the U.S. due to Martin Luther King Jr. Day.Adding to the day’s suspense is the scheduled release of a slew of economic data from China. Could this turn out to be a “Freaky Friday” for the markets, with the potential to either soothe or stoke the smouldering anxieties of global investors? The scene is set for a day that could pivot in any direction, driven by fresh data and US political currents.
FOREXThe strengthening yen has primarily been fueled by escalating expectations of a Bank of Japan (BoJ) rate hike, potentially as early as next week. Contributing to the yen’s rise, a sharp decline in global bond yields has narrowed the yield differentials with Japan, making yen assets more attractive. This shift comes after a tumultuous start to the year for global bond markets, where fears of escalating inflation were rampant. However, the release of softer inflation data from the UK and the US has provided a respite, underscoring that market fears may have been initially overstated. The latest CPI figures from these countries have reinforced the view that underlying inflationary pressures are easing, which could encourage both the Bank of England and the Federal Reserve to continue their rate-cutting agendas this year.More By This Author:Milder Core CPI Boosts Investor Sentiments
January’s Start Hasn’t Showered Warmth On Equity Investors’ Buoyant Spirits
Investors Cautiously Capitalized On Market Dips