Global equity markets are heading for a third consecutive week of gains, driven by a resurgence of AI trading enthusiasm and cooling US inflation. This has tempered expectations for a September rate hike by the Federal Reserve, fuelling a broad rally in technology stocks that is also lifting markets across the Asia-Pacific region.
Pre-market trading in the US shows a majority of major tech stocks edging higher. Micron Technology is up 1%, SpaceX has gained 0.5%, and Tesla is 0.3% higher. Amazon and Alphabet are both up 0.1%, while Nvidia and Apple are flat. On the downside, Meta and Microsoft are down 0.1%, and SK Hynix has fallen 0.4%.
The US Labor Department released two consecutive days of mild inflation data this week, which, combined with last week's weaker-than-expected jobs report, has led money markets to price the probability of a September rate hike at approximately 35%. South Korea's KOSPI index surged over 2% on Friday, bringing its weekly gain to 11% and snapping a seven-week losing streak. Samsung Electronics and SK Hynix have both risen more than 15% over the past five trading sessions.
Yugo Tsuboi, Chief Strategist at Daiwa Securities, commented, "The mild easing of uncertainty over US monetary policy has become a catalyst for the tech stock rebound. With no signs of inflation worsening, excessive concern about the Fed turning hawkish has receded, prompting funds to concentrate buying into high-growth stocks."
US Tech Stocks Mostly Rise Pre-Market, European Markets Open Higher
Pre-market trading in the US shows a majority of major tech stocks edging higher. Micron Technology is up 1%, SpaceX has gained 0.5%, and Tesla is 0.3% higher. Amazon and Alphabet are both up 0.1%, while Nvidia and Apple are flat. On the downside, Meta and Microsoft are down 0.1%, and SK Hynix has fallen 0.4%.
In Europe, the Stoxx 50 index opened 0.25% higher, Germany's DAX gained 0.65%, the UK's FTSE 100 rose 0.1%, and France's CAC 40 increased by 0.1%.
Japan's Nikkei 225 advanced 0.6% to close at 68,713.80 points. The broader Topix index finished 0.5% higher at 4,197.20 points. In South Korea, the Seoul KOSPI composite index jumped 2.41% to 6,977.34 points.
The Japanese yen traded steadily on Friday, hovering around the 159.40 level against the US dollar.
The yield on the 2-year US Treasury note was flat at 4.15%, after declining by 6 basis points the previous day.
Spot gold fell 0.5% to $4,330 per ounce.
Brent crude oil edged slightly higher to around $87.55 per barrel, while WTI crude rose 1% during the session to $82.08 per barrel.
Rate Cut Expectations Buoy Tech Stocks
The two consecutive days of mild US inflation data have been the core driver of the recent market rebound. Pre-market trading in the US shows a majority of major tech stocks edging higher. Micron Technology is up 1%, SpaceX has gained 0.5%, and Tesla is 0.3% higher. Amazon and Alphabet are both up 0.1%, while Nvidia and Apple are flat. On the downside, Meta and Microsoft are down 0.1%, and SK Hynix has fallen 0.4%.
The Philadelphia Semiconductor Index rose 0.5% on Thursday, closing at its highest level since mid-July. An Asian index of chip-related stocks also gained nearly 1% on Friday, on track to hit its highest closing level since July.
Last month's tech sell-off stemmed from concerns that the year's hottest trade had risen too quickly. However, strong earnings reports subsequently released by several major tech companies alleviated these concerns, drawing investors back to AI-related assets. Hitoshi Asaoka, Chief Strategist at Asset Management One, stated, "A massive amount of hyperscale cloud capital is flowing into hardware, which directly translates into extremely strong sales and profit growth for hardware companies. Investors are returning to a simple logic: re-evaluating corporate earnings themselves."
Short-End Treasuries Shine, Long-End Yields Remain Under Pressure
Supported by expectations of cooling inflation, US Treasuries extended their weekly gains, with short-term bonds, which are more sensitive to interest rate policy, outperforming their longer-term counterparts. The 2-year Treasury yield was nearly flat on Friday at 4.15%, after dropping 6 basis points the day before.
Meanwhile, the US yield curve continues to steepen. The spread between the 30-year and 5-year Treasury yields has widened for a third consecutive week, marking the longest such streak since mid-April. The US Treasury's auction of 30-year bonds this week saw yields reach a quarter-century high, reflecting investors' demand for higher returns to absorb the expanding fiscal deficit.
"The next round of data before the September meeting will be crucial," said Stephen Juneau, an economist at BofA Securities. He also noted, "The market has clearly begun to increasingly price in a rate hike, as recent data has been generally dovish."
Asia-Pacific Markets Rally, Yen Trades Steady
Major stock indices across the Asia-Pacific region closed higher on Friday. Japan's Nikkei 225 advanced 0.6% to 68,713.80 points, and the Topix rose 0.5% to 4,197.20 points. South Korea's KOSPI index surged 2.41% to 6,977.34 points.
Regarding the yen, reports suggest the government led by Prime Minister Shigeru Ishiba supports a rate hike. However, the yen remained steady on Friday, trading around the 159.40 level against the US dollar, still near the key 160 mark.
In other assets, Brent crude oil edged slightly higher to around $87.55 per barrel, and WTI crude rose 1% during the session to $82.08 per barrel, with no signs of easing in the Middle East situation. Spot gold fell 0.5% to $4,330 per ounce.
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