Investor optimism regarding potential interest rate reductions in the United States propelled most Asian stock markets higher on Tuesday. Sentiment also found support as initial jitters over a sharp spike in Japanese government bond yields showed signs of easing.
Key Indices Show Positive Momentum
The trading session witnessed gains across several major benchmarks. Hong Kong's Hang Seng Index (HSI) edged up by 0.11%, adding 28 points to close at 26,061. Japan's Nikkei 225 also climbed, rising 56 points to reach 49,360 by 10:30 AM Indian Standard Time (IST). The most significant surge came from South Korea, where the Kospi index jumped by a substantial 1.81% to settle at 3,991.
However, mainland Chinese markets diverged from the regional trend. The Shanghai Composite index declined by 0.55%, while the Shenzhen Component index fell by a wider margin of 0.77%.
Drivers Behind the Market Rally
The upbeat mood followed a quiet session on Monday and was primarily fueled by renewed confidence that the US Federal Reserve is inching closer to cutting borrowing costs. A fresh set of weak economic data from the United States reinforced this belief. Notably, a survey from the Institute for Supply Management indicated that US factory activity contracted for the ninth consecutive month, suggesting a softening economic landscape.
This data aligns with a recent shift in rhetoric from several Fed officials, who have signaled that preserving employment growth may now take precedence over combating inflation. With the labour market showing signs of cooling and inflation appearing stable, expectations for a third straight rate cut have gained traction. These hopes have been a key factor supporting equity markets in recent weeks, helping them recover from a November slump triggered by tech sector anxieties.
Japan's Market Stabilises After Bond Yield Shock
Japanese markets managed to recover on Tuesday after suffering heavy losses in the previous session. The sell-off was triggered by remarks from Bank of Japan Governor Kazuo Ueda, who unsettled global investors by hinting at a potential interest rate hike as early as this month.
His comments caused the yen to surge and pushed yields on Japanese two-year government bonds above 1%, a level not seen since the 2008 global financial crisis. Although the yen steadied on Tuesday, the shockwaves contributed to a pullback on Wall Street and reduced risk appetite, which also dragged down cryptocurrency markets. Investors are now closely watching a scheduled auction of 10-year Japanese government bonds, seen as a critical test of market sentiment following the yield spike.
Corporate Spotlight: Samsung's Foldable Phone
In significant corporate news from the region, shares of South Korean tech giant Samsung Electronics jumped more than 2%. The rally came after the company unveiled its first triple-folding smartphone. While Samsung acknowledged the device's premium price tag—expected to exceed $2,400—would likely place it out of reach for most consumers, investor reaction remained overwhelmingly positive, highlighting confidence in the company's innovation pipeline.
The overall market trajectory underscores how global macroeconomic signals, particularly from the US Federal Reserve, continue to dictate risk appetite in Asian financial hubs. The day's trading demonstrated a fragile balance between optimism for looser monetary policy and nervousness over shifting central bank strategies in other major economies like Japan.
