Nikkei 225 Index: Tech Stocks Join Tuesday Rally as USD/JPY Trends Higher

US Equity Markets: Caution Strikes as CPI Report Looms

The US equity markets kick-started the week cautiously as the US CPI Report loomed. The Nasdaq Composite Index advanced by 0.21% on rising demand for chip stocks, while the Dow fell by 0.36%. The S&P 500 ended the session flat.

US producer price and consumer inflation figures will be in the spotlight for the Fed on Tuesday and Wednesday. Higher-than-expected numbers could temper investor bets on multiple 2024 Fed rate cuts. A less dovish Fed rate path could adversely impact buyer demand for riskier assets.

NY Consumer Expectations Survey Sends Recession Warnings

On Monday, the NY Consumer Expectations Survey sent the Fed several red flags ahead of the inflation reports. Notably, Consumers’ three-year-ahead inflation expectations declined by 0.6 percentage points to a new series low of 2.3%. Additionally, one-year-ahead earnings growth fell by 0.3 percentage points to 2.7%.

Expert Commentary

Arch Capital Global Chief Economist Parker Ross commented on the New York Fed’s Survey of Consumer Expectations, stating,

• Inflation expectations remain well-anchored.
• Consumers are increasingly worried about servicing their debt.
• Job-finding prospects continue to decline.
• Home price growth is expected to remain near-trend.

The survey supported bets on multiple 2024 Fed rate cuts, while the overnight US equity market session will set a cautious tone for the Tuesday Asian session.

The Yen Carry Trade Unwind

On Monday, August 12, the USD/JPY gained 0.40% to 147.191. The Bank of Japan’s plans to maintain steady rates contributed to the gains, easing fears of another Yen carry trade unwind. The USD/JPY continued to rise on Tuesday, increasing by 0.10% to 147.334. The weaker Yen fueled a Nikkei rally.

Nikkei Index Rallies on Yen Slide

The Nikkei Index rallied 2.28% on Tuesday morning, with a stronger USD/JPY driving buyer demand for Nikkei-listed stocks.

Softbank Group Corp. (9984) rallied 4.88%, while Tokyo Electron Ltd. (8035) advanced by 0.70%.

Hang Seng and Mainland China Advance

The Hang Seng Index gained 0.08% on Tuesday morning, with investors cautious ahead of a busy week on the US and China’s economic calendars. However, concerns over Fed policy and China’s economic woes left the real estate and tech sectors with early losses.

The Hang Seng Mainland Properties Index (HSMPI) fell by 0.33%, while the Hang Seng Tech (HSTECH) Index declined by 0.41%. Alibaba (9988) and Tencent (0700) saw gains of 0.38% and 0.70%, respectively, while Baidu (9888) fell by 0.12%.

Mainland China’s equity markets joined the Hang Seng in positive territory. The CSI 300 and the Shenzhen Composite Index were up 0.07% and 0.31%, respectively. Hopes for a stimulus package from Beijing likely contributed as investors awaited crucial data from China due on Thursday.

ASX 200 Extends Its Gains from Monday

The ASX 200 Index gained 0.09% on Tuesday morning. Bank, oil, and gold stocks contributed.

Gold-related stock Northern Star Resources Ltd. (NST) advanced by 0.36%, while Woodside Energy Group Ltd (WDS) gained 0.29% on rising geopolitical tensions in the Middle East.

Investors should remain alert amidst China’s economic growth jitters and shifting sentiment toward the US economy. Closely monitor the news wires, real-time data, and expert commentary to manage trading strategies accordingly. Stay informed with our latest news and analysis to manage positions across the Asian equity markets.