Asian stocks managed to reverse early declines to post modest gains on Tuesday, buoyed by a strong overnight performance on Wall Street. However, lingering concerns over China’s faltering economy tempered the positive momentum.
The MSCI Asia-Pacific index, excluding Japan, rose 0.2%, recovering slightly after dropping 1.11% in the previous session, which had sent it to a one-month low. Japan’s Nikkei gained 0.4%, driven by strength in financial and consumer stocks.
Wall Street saw a sharp rebound overnight, with all three major U.S. stock indices surging over 1%, recovering from a significant selloff last week.
“Risk-off sentiment stabilized overnight, and U.S. equities bounced back as investors took advantage of the recent dip,” ING economists noted in a report. “Markets are now focused on the upcoming U.S. inflation data, as the non-farm payroll numbers weren’t enough to justify a 50-basis-point rate cut.”
The U.S. inflation report, set for release on Wednesday, is expected to show that the annual inflation rate slowed to 2.6% in August. Any significant deviation from this forecast could alter the outlook for future rate cuts, according to Jun Bei Liu, a portfolio manager at Tribeca Investment Partners.
“If inflation surprises in either direction, it could lead to adjustments in the market’s expectations for rate cuts,” Liu explained. “Currently, the market is aggressive in pricing cuts for the remainder of the year, contributing to the recent volatility.”
The Federal Reserve is widely expected to lower interest rates at its meeting next week, with markets estimating a 29% chance of a larger 50-basis-point cut. An additional 110 basis points in cuts are anticipated for the rest of the year.
Meanwhile, U.S. futures showed mixed performance on Tuesday, with S&P 500 futures inching up 0.02%, while Nasdaq futures slipped 0.07%. In Europe, EUROSTOXX 50 futures rose 0.23%, but FTSE futures dipped by 0.16%.
Dollar Gains, Euro and Sterling Slightly Weaker
In the currency markets, the U.S. dollar gained 0.22% against the Japanese yen, reaching 143.47. The euro slipped marginally to $1.1032, while the British pound edged down 0.06%, trading at $1.30655.
China’s Economic Struggles Continue
In Asia, concerns about China’s economic growth weighed on investor sentiment. Data released on Monday revealed that consumer inflation accelerated in August at its fastest pace in six months. However, domestic demand remained fragile, and producer price deflation worsened, raising alarms about the state of the world’s second-largest economy.
These factors pushed Chinese stocks to seven-month lows in the previous session, while the yuan also came under pressure, with calls for additional stimulus from Beijing growing louder. The offshore yuan fell 0.04% to 7.1234 per dollar.
“The stimulus measures from Beijing have been too limited and too targeted. The economy isn’t recovering as quickly as expected,” Liu added.
Trade data, due later on Tuesday, could offer further insight into China’s recovery trajectory.
Hong Kong’s Hang Seng Index rose 0.22%, but the Hang Seng Mainland Properties Index extended its losses, down 0.2% after falling 3.5% in the previous session.
Adding to the challenges for China were growing trade tensions with the U.S. On Monday, the U.S. House of Representatives passed a bill aimed at restricting business dealings with Chinese biotech companies, including WuXi AppTec and BGI, over national security concerns.
Oil Prices Steady Amid Market Volatility
In commodities, oil prices held steady. Brent crude futures edged up 0.42% to $72.14 per barrel, while U.S. crude gained 0.36%, trading at $68.96 per barrel.
