Markets Consolidate Gains Amid Fed Speculation
Asian financial markets concluded a notably positive week with restrained trading activity on Friday. This period of consolidation unfolded against a backdrop of mounting anticipation that the US Federal Reserve will implement another interest rate reduction in the coming month. The overall sentiment remained buoyant, driving global equities to a strong weekly performance.
Regional Indices Show Mixed Signals
While the broader picture was optimistic, the performance of individual regional markets was a mixed bag. Key benchmarks like South Korea’s Kospi, Japan’s Nikkei 225, and Hong Kong’s Hang Seng index all experienced declines during the day's session. In contrast, China’s Shanghai Composite managed to edge slightly higher into positive territory. Trading volumes were generally subdued, partly influenced by the Thanksgiving holiday in the United States, which led to a shortened trading schedule and quieter activity across major asset classes.
European stocks, however, traded mostly higher, and movements in the currency markets were modest. The MSCI’s broad index of Asia-Pacific shares outside Japan remained flat for the day, but this stability placed it on track for a significant 3% weekly gain. This marks its first weekly rise after four consecutive weeks of decline, though it still remains down by 2.7% for the month of November.
Central Bank Moves and Economic Data in Focus
Japan's Nikkei index was little changed on Friday but is headed for an impressive 3.2% weekly advance. Despite this weekly surge, the index has shed 4.3% of its value over November. In South Korea, shares slipped by 1% after the nation's central bank decided to hold interest rates steady and indicated a potential end to its current monetary easing cycle. Even with this daily drop, the country's benchmark index recorded a solid 2.5% gain for the week.
The relative quiet from New York provided traders with an opportunity to reflect on the sharp market rebound witnessed this month, which effectively reversed a slide in November that was triggered by renewed fears of an overvalued, AI-driven technology bubble. While debates about stretched valuations in the tech sector persist, the market's focus has firmly shifted to the future path of US interest rates.
A series of senior Federal Reserve officials have publicly supported a third consecutive rate cut. Their argument centres on the belief that concerns about a weakening labour market currently outweigh the risks posed by still-elevated inflation. Investors are now keenly watching for upcoming economic data releases, including figures on private hiring, services activity, and the Fed's preferred inflation gauge, the personal consumption expenditure (PCE) index. This data is expected to be a critical factor influencing the Fed's policy decision in December.
Compounding the uncertainty, a US government shutdown has led to the delay or cancellation of several key economic reports. Notably, the crucial non-farm payrolls report will now be published in mid-December, after the Fed's scheduled policy meeting. Financial markets are currently pricing in an 85% probability of a rate cut in December and are anticipating three additional cuts in the year 2026.
In currency markets, the Japanese yen experienced fluctuations against the US dollar. This movement followed the release of Tokyo's inflation data, which came in slightly higher than economists had forecast. The hotter-than-expected numbers revived speculation that the Bank of Japan might be compelled to consider a future interest rate hike. Despite this bounce, the yen continues to face pressure due to ongoing concerns about Japan's fiscal outlook and its rising borrowing commitments. However, it has managed to recover from the levels near 158 per dollar seen earlier in the week.
In the commodities market, Brent crude, the global oil benchmark, climbed 0.36% to USD 63.57 per barrel.
