Key points
- Asian markets experienced widespread gains following the record-breaking performance of the US stock market.
- Positive economic data from Japan, including rising labor cash earnings and household spending, boosted investor sentiment.
- The US-Japan trade deal, which features reduced tariffs on Japanese car imports, contributed to a positive market mood.
- Oil prices experienced a slight decrease, while the US dollar weakened against the Japanese yen and the euro strengthened.
Asian markets rallied on Friday, mirroring the record highs set on Wall Street the previous day. The surge was fueled by a combination of positive economic indicators from Japan and expectations of a potential Federal Reserve interest rate cut in response to softening US job market data. Japan’s Nikkei 225 index saw a robust 0.94% increase, boosted by a 4.1% year-on-year rise in July’s labor cash earnings and a third consecutive month of growth in household spending.
Major stock markets across the Asia-Pacific region saw positive gains. The Hang Seng Index in Hong Kong experienced a significant increase, at 25,381.41, up 322.90 or 1.29%. Similarly, mainland China’s Shanghai Composite Index posted a strong performance, rising by 49.11, a 1.30% gain, to reach 3,814.98. In Australia, the S&P/ASX 200 also ended in positive territory, climbing 44.70, or 0.51%, to close at 8,871.20.
The recent US-Japan trade deal, which includes reduced tariffs on Japanese car imports, also contributed to investor optimism.
The US stock market’s record-breaking performance was largely attributed to decreased pressure from the bond market, where Treasury yields fell following weaker-than-expected US job market reports. These reports indicated a slowdown in hiring and a rise in unemployment claims, suggesting a potential cooling of the US economy.
While not signaling a recession, these numbers raised speculation that the Federal Reserve might cut interest rates at its upcoming meeting, a move that could stimulate economic growth. The anticipation of a rate cut, favorable for investors, played a significant role in driving the market rally.
The expectation of a rate cut stems from a shift in the Fed’s priorities. Previously focused on combating potential inflation exacerbated by tariffs, the weaker job market data now places greater emphasis on economic stimulus. The upcoming comprehensive August jobs report from the US Labor Department is expected to influence the Fed’s decision further.
Meanwhile, oil prices dipped slightly, with benchmark US crude and Brent crude both experiencing minor declines. The US dollar also weakened against the Japanese yen, while the euro appreciated against the dollar.
The confluence of positive economic news from Japan, the US-Japan trade deal, and the anticipation of a potential Fed rate cut created a powerful upward trend in Asian markets. This positive market sentiment was further bolstered by the record highs achieved on Wall Street, despite concerns stemming from softening US job market indicators.
