Asian equities climbed higher as talks between the US and Russia raised hopes for an end to the war in Ukraine. In addition, improving market conditions in China helped boost risk sentiment across the region.
The regional stock gauge rose for a second consecutive day, with both Japanese and Hong Kong stocks showing positive movement. Asian markets focused more on the ongoing peace talks between US President Donald Trump and Russian President Vladimir Putin, overlooking the higher-than-expected US inflation figures that had eroded expectations of rate cuts. On Wednesday, the US Consumer Price Index (CPI) had triggered a selloff in Treasury bonds.
Risk Appetite Returns Despite US Inflation Concerns
This shift in risk appetite follows a period of underperformance in Asia’s stock markets, which had been affected by threats of US tariffs, a stronger US dollar, and a lack of domestic policy stimulus in China. However, Chinese markets have shown signs of recovery in recent weeks, fueled by breakthroughs in artificial intelligence and increased state support for the country’s struggling property sector.
Charu Chanana, chief investment strategist for Saxo Markets in Singapore, highlighted that “the potential resolution of the Russia-Ukraine conflict, along with ongoing momentum in China’s tech sector, has boosted market sentiment.” He also noted that the January CPI data is often skewed by annual costs, such as insurance, meaning it may be sidelined in favor of news surrounding Trump and his tariff announcements.
Oil Prices and Currency Movements Reflect Geopolitical Tensions
Oil prices continued to fall following the US-Russia talks, while the US dollar index showed little change. The Japanese yen saw a slight recovery on Thursday after falling more than 1% on Wednesday. Treasury yields remained relatively unchanged, while bonds in Australia and New Zealand followed Wednesday’s selloff.
Trump and Putin Open Dialogue for Potential Ukraine Peace Deal
In a significant diplomatic shift, President Donald Trump spoke with Russian President Vladimir Putin about starting negotiations to end the war in Ukraine. This move reversed US foreign policy over the past three years and surprised European allies, who feared that a more conciliatory approach might give too much leverage to Russia.
China’s Government Steps In to Support Property Developer
In China, the government is reportedly working on a proposal to help China Vanke Co. secure about 50 billion yuan ($6.8 billion) in funding this year. This highlights the government’s commitment to supporting distressed developers in the country, further boosting market sentiment.
Key Economic Data to Watch in Asia
Thursday will bring key economic data from Asia, including Japan’s producer price figures and an interest rate decision from the Philippines. Additionally, money supply data for China may be released at any time before February 15. Indian Prime Minister Narendra Modi is also set to meet with President Trump at the White House later Thursday.
Treasury Bond Selloff Follows US Inflation Data
In the wake of the US inflation report, Treasury prices fell across the board as investors adjusted their expectations for Federal Reserve rate cuts. The data showed a higher-than-expected rise in US consumer prices, prompting traders to revise their forecasts and predict that the first rate cut by the Fed will now occur in December. Federal Reserve Chair Jerome Powell stated that while progress has been made in controlling inflation, there is still more work to be done.
The January CPI rose 0.5%, marking the largest increase since August 2023. Core CPI, which excludes food and energy costs, rose 0.4% in January, surpassing expectations. Both year-over-year measures for headline and core inflation also rose more than anticipated.
Market Reactions to Inflation Data
Following the release of the inflation data, the S&P 500 closed down 0.3%, after initially falling 1.1%. Despite this, major tech stocks like Tesla Inc. saw gains, and Meta Platforms Inc. rose for the 18th consecutive session. The Nasdaq 100, for the first time since November, reversed an intraday loss of 1%. In late trading, Cisco Systems Inc. surged following an optimistic sales forecast.
Gold Prices Remain Strong
Gold prices continued their upward momentum, inching closer to their record high set earlier this week, as investors sought safe-haven assets amid geopolitical and economic uncertainties.
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