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Asian markets gain on US data, rate cut hopes

Asian stocks

Tokyo, Sydney, Seoul, Singapore and Jakarta were all in the green, though there were small losses in Manila and Wellington

Asian markets gained on Thursday after US data provided a fresh indicator that inflation was easing and Fed Chair Jerome Powell soothed concerns about the central bank’s plans to reduce interest rates this year.

An equities rally that started at the back end of 2023 has stuttered in recent weeks after a series of reports indicated the economy was too strong and price too sticky for officials to begin easing monetary policy this year.

Warnings from decision-makers that they were concerned about bringing down borrowing costs too soon have also played on investors’ minds, causing them to pare back expectations for how many – if any – were coming before January.

But those concerns were allayed somewhat Wednesday when Powell said he still saw cuts coming in 2024.

He told a conference in California that rates, which are at a two-decade high, were doing their job but said moving too soon could be “quite disruptive” for the country’s economy.

But if the economy continues to evolve as expected, most Fed participants still expect it will be “appropriate to begin lowering the policy rate at some point this year”.

Evercore’s Krishna Guha commented: Powell says recent data has not materially changed the picture.

We read this as confirming that the spasm of concern in markets that the economy might be too strong for the Federal Reserve to trim in June was overdone – and the base case remains June and three cuts this year, Guha added.

Confidence among traders was given an extra lift by figures showing a slowdown in growth in the services sector and a sharp decline in input costs during March, indicating an easing of inflation.

That contrasted with a stronger-than-expected reading of US manufacturing and prices paid earlier this week, which triggered questions about the Federal Reserve’s rate-cutting timeline.

A report pointing to a further slowdown in eurozone inflation gave confidence an extra boost.

The S&P 500 and Nasdaq advanced on Wall Street, and most of Asia followed suit.

Tokyo, Sydney, Seoul, Singapore and Jakarta were all in the green, though there were small losses in Manila and Wellington.

Hong Kong and Shanghai were shut for holidays.

Traders are now looking forward to the release of US jobs data, which is due Friday, and could have a impact on the Fed’s plans.

A big miss on the downside could boost hopes for a June rate cut, though a forecast-beating read would likely trigger a sell-off in markets.

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