Asian Shares Fall as Japan’s Inflation Slows Faster Than Expected
Asian shares experienced a decline on Friday, despite positive news about the U.S. economy. Japan’s benchmark, the Nikkei 225, fell by 1.1% in morning trading after new data revealed that inflation in the country has been slowing down at a faster rate than anticipated. The key measure of inflation showed a decrease from 2.4% in December to 1.6% in January. This decline in price increases alleviates pressure on the Bank of Japan to tighten its ultra-lax monetary policy, which has injected significant amounts of cash into the markets. The central bank has been targeting a 2% inflation rate.
Robert Carnell, the regional head of research Asia-Pacific at ING, stated in a report, “The BOJ will wait to gauge the underlying trend of the inflation path for the next few months. We expect inflation to rebound above 2% in February.”
Chinese markets also experienced a downturn after the government implemented measures to support share prices and the property sector. Hong Kong’s Hang Seng slipped by 1% to 16,052.41, while the Shanghai Composite lost 0.4% to 2,895.14.
In contrast, South Korea’s Kospi saw a jump of 1% to 2,493.73. Trading was closed in Australia due to a national holiday.
On Wall Street, the S&P 500 added 0.4% to reach a record high for the fifth consecutive day at 4,894.16. The Dow Jones Industrial Average climbed by 0.6% to 38,049.13, and the Nasdaq composite gained 0.2% to 15,510.50. IBM played a significant role in leading the market with a gain of 9.5% after reporting better-than-expected profits for the latest quarter. Although four out of five stocks in the S&P 500 rose alongside IBM, Tesla’s drop of 12.1% limited the market’s overall gains.
Tesla reported earnings and revenue that fell short of forecasts and warned of lower sales growth this year. However, Wall Street’s main focus was on a report indicating that the U.S. economy continues to thrive, debunking last year’s predictions of an imminent recession due to high interest rates.
The U.S. government’s initial estimate revealed that the economy grew at a 3.3% annual rate in the last three months of 2023, surpassing economists’ expectations of 1.8% growth. This robust economic performance is expected to drive profits for companies, which are a significant factor in determining stock prices. The report also provided encouraging evidence that inflation continued to moderate at the end of 2023. There is optimism that inflation has cooled enough for the Federal Reserve to consider cutting interest rates this year, which would alleviate pressure on financial markets and boost investment prices.
Jamie Cox, managing partner for Harris Financial Group, commented, “The headline data are the perfect mix of strong consumption and dropping inflation. This is exactly what you want to see if you are running the Fed and want to move rates lower this year.”
Another report indicated that although more U.S. workers applied for unemployment benefits last week, the number remains relatively low compared to historical data, indicating a resilient job market. As a result, Treasury yields fell in the bond market due to expectations of rate cuts. The yield on the 10-year Treasury slipped to 4.10% from 4.16% before the release of the report and from 4.18% late Wednesday. In October, it reached 5%, its highest level since 2007.
Earnings season continued on Wall Street, with over two dozen companies in the S&P 500 reporting their latest results. American Airlines saw a 10.3% rise in its stock after reporting stronger-than-expected profits for the latest quarter. On the other hand, Humana experienced a decline of 11.7% after reporting worse-than-expected results for the end of 2023.
In energy trading, benchmark U.S. crude declined by 39 cents to $76.97 a barrel, while Brent crude, the international standard, fell by 26 cents to $82.17 a barrel. In currency trading, the U.S. dollar slightly decreased from 147.61 Japanese yen to 147.63 yen, while the euro remained relatively unchanged at $1.0848 compared to $1.0851.
Overall, the Asian market experienced a decline due to Japan’s slowing inflation rate, while the U.S. market remained resilient with positive economic data and strong corporate earnings. Investors are closely monitoring inflation trends and the possibility of interest rate cuts by the Federal Reserve.