H.G Markets:

Asian equities advanced on Friday, led by Japan, following record highs in US stocks driven by in-line inflation data. Japan’s Nikkei benchmark surged up to 2.1% to reach an all-time high, approaching the 40,000 mark, after a two-day decline. This positive momentum was spurred by the Federal Reserve’s preferred inflation gauge on personal consumption expenditures meeting expectations. The market anticipates rate cuts this year, and the PCE inflation figures suggest good news for non-US dollar assets and Asian equities, indicating growth on the ground. US stock futures climbed after both the S&P 500 and Nasdaq 100 indexes closed at record levels, with NVidia Corp. reaching its highest closing price on the day. These benchmarks concluded February with their fourth consecutive monthly advance.

Treasury yields stabilized after two consecutive gains, supported by jobless claims data indicating a softening labor market. Traders also suggested that short covering contributed to the gains. The dollar index remained relatively unchanged. The yen weakened against the dollar after Bank of Japan Governor Kazuo Ueda stated that the bank’s price target is not yet in sight, potentially dampening speculation about an early rate hike in March.

In China, factory activity contracted for the fifth consecutive month in February, highlighting persistent weak demand in the economy. However, a gauge of non-manufacturing activity showed expansion, driven by increased travel and tourism during a recent extended holiday period. Despite regulatory efforts to revive the property market, China’s home sales continued to decline in February, with the value of new home sales from the 100 largest real estate companies plummeting by 60% compared to the previous year.

The US PCE report did not alter the broader disinflationary trend supporting rate cut expectations. Quincy Krosby noted, “For markets focused on the Fed’s rate easing transition, this report restores confidence that the Fed will begin cutting rates in 2024, with the question being ‘when’ rather than ‘if’.” Federal Reserve Bank of San Francisco President Mary Daly expressed readiness to lower interest rates as necessary but emphasized that there is no urgent need for cuts given the economy’s strength. Cleveland Fed’s Loretta Mister stated that Thursday’s inflation data indicated policymakers still have work to do to alleviate price pressures, but it did not change her expectation of three rate cuts by the Fed this year.