Asian shares mostly rose on Tuesday in anticipation of potential market-moving events, including a U.S.-China summit and upcoming economic data releases from the U.S., Japan, and China.
Japan’s benchmark Nikkei 225 increased by 0.5% to 32,757.44, while Australia’s S&P/ASX 200 advanced 0.6% to 6,992.10. South Korea’s Kospi saw a gain of 1.1% to reach 2,429.21. Hong Kong’s Hang Seng dropped 0.4% to 17,359.13, and the Shanghai Composite inched up by less than 0.1% to 3,047.13.
Investors were optimistic as they awaited U.S. inflation figures, aiming to confirm that interest rates had peaked. Positive geopolitical sentiments were also prevalent, with anticipation building for talks between the U.S. and China, as stated by Stephen Innes, managing partner at SPI Asset Management.
China is scheduled to release monthly economic indicators on Wednesday, and Japan will reveal its latest growth numbers. Additionally, Chinese leader Xi Jinping is set to meet with President Joe Biden on Wednesday during a Pacific Rim summit in California, marking the first face-to-face encounter in a year between the leaders of the world’s two largest economies.
On Monday, Wall Street had a mixed finish, with the S&P 500 slipping 0.1% to 4,411.55, the Dow Jones Industrial Average gaining 0.2% to 34,337.87, and the Nasdaq composite falling 0.2% to 13,767.74.
Despite the Federal Reserve raising its main interest rate to the highest level since 2001 to combat high inflation, the economy has remained strong. However, concerns persist about its ability to stay robust as the full effects of rate hikes permeate the system.
That’s why there’s considerable focus on Tuesday’s inflation report. The expectation is that inflation will continue to decrease from its peak in the summer of 2022, when it reached 9%, aiming to persuade the Federal Reserve that further interest rate hikes are unnecessary. This could potentially accelerate the timeline for potential cuts to interest rates.
Economists anticipate the report will reveal a 3.3% increase in consumer prices in October compared to the previous year, down from September’s inflation rate of 3.7%.
With inflation generally subsiding, Federal Reserve Chair Jerome Powell recently suggested that the recent uptick in longer-term Treasury yields could serve as an alternative to additional rate hikes. However, Powell emphasized last week that the Fed would not hesitate to raise rates again if necessary.
In the bond market, the yield on the 10-year Treasury stands at 4.63%, consistent with late Friday’s level. While it has decreased over the past month in anticipation of the Fed possibly concluding its rate hikes, it remains significantly higher than levels seen in previous years.
Elevated rates and yields negatively impact various investments, particularly affecting technology and other high-growth companies. Some major tech stocks, such as Apple (down 0.9%) and Microsoft (down 0.8%), contributed to the S&P 500’s decline.
Moody’s, the credit-rating agency, indicated on late Friday that it might eventually downgrade the top-tier “AAA” rating for U.S. government debt due to the increasing cost of interest rates and political polarization in Congress. The looming deadline for a potential U.S. government shutdown further complicates the situation.
Overall concerns about substantial deficits and the lack of cooperation between the two political parties have contributed to the rise in Treasury yields.
In other markets, benchmark U.S. crude oil increased by 16 cents to $78.42 a barrel in electronic trading on the New York Mercantile Exchange, following a $1.09 gain on Monday. Brent crude, the international standard, rose by 17 cents to $82.69 a barrel.
In currency trading, the U.S. dollar remained unchanged at 151.72 Japanese yen, while the euro dipped slightly from $1.0701 to $1.0699.
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