Nikkei Gains as BOJ Stands Firm, Hang Seng Rallies on Fed Bets
On Friday, stocks in Asia improved and reached their highest level in four months. Investors were feeling optimistic because they believe that the US Federal Reserve will finally reduce its efforts to increase interest rates.
The markets received positive updates from the central banks of Japan and China. The Bank of Japan decided to maintain its ultra-easy policy, while the People's Bank of China is set to introduce additional economic incentives to alleviate its current difficulties.
The first country in Asia to experience a surge in optimism was Japan. The Nikkei index reached a new high in 30 years and managed to achieve a 10-week consecutive gain.
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This happened as the BOJ decided to maintain their commitment to patiently holding onto a large stimulus package.
As predicted by many, the BOJ has kept its short-term interest rate target at -0.1% and the cap on the 10-year bond yield at 0% as part of its yield curve control policy.
The Nikkei ended the day at 33,706.08, an increase of 0.66%. At one point during trading, it reached its highest level in 33 years before ultimately settling at its closing mark.
The index had an increase of 4.5% over the week and reached a 10-week winning streak, resulting in a 22% rise which was the longest in 11 years.
On Friday, the Topix index increased by 0.28% and it achieved a 3.4% increase for the whole week.
The recent surge in the stock market has been mostly caused by the declining value of the yen, which benefits companies that export goods, and by the entry of investments from international investors who have noticed the Japanese government's efforts to enhance the financial stability and management of Japanese businesses.
The stock market in China and Hong Kong experienced an increase, with investors feeling optimistic due to the possibility of additional stimulus. This optimism resulted from the decision by the People's Bank of China to lower certain important policy rates during the current week.
Sources familiar with China's policy discussions have revealed that additional stimulus will be implemented to aid the country's falling economy. However, there are reservations about the possibility of increasing debt levels and capital outflows and as a result, any measures to bolster consumer and private sector demand will be aimed at overcoming these concerns.
"Rumours Surrounding China's Treasury Bonds"
At the same time, it was reported by the Wall Street Journal that the Chinese capital city is contemplating the release of special government bonds worth about one trillion yuan ($140.17 billion). The purpose is to aid local governments struggling with debt and to enhance the confidence of businesses.
The stock market in Shanghai showed an increase of 0.63% or 20.36 points, reaching the level of 3,273.33. The second stock market in Shenzhen experienced a 0.99% increase or 20.41 points, with a current rating of 2,083.36.
The Hang Seng Index increased by 1.07%, equivalent to a rise of 211.45 points, reaching 20,040.37. Moreover, the China Enterprises Index gained 0.89%.
In other parts of the area, Sydney, Seoul, Singapore, and Wellington were experiencing favourable trade, while Taipei, Manila, and Jakarta were facing losses.
The Asia-Pacific shares outside Japan, as measured by the MSCI index, saw a rise of 0.75% and is set to achieve a 2.8% increase throughout the week, making it the strongest weekly performance since January.
The outlook for European markets was less active based on futures predictions. Eurostoxx 50 futures rose by 0.05%, German DAX futures increased by 0.10%, while FTSE futures decreased by 0.03%. The S&P 500's E-mini futures decreased by 0.12%.
On Thursday, the S&P 500 and Nasdaq went up significantly and reached their peak in 14 months. This happened as a result of the release of data that indicated a surprising increase in US retail sales during May. However, at the same time, US jobless claims were higher than anticipated.
The large amount of information strengthened predictions that the Federal Reserve would not go through with further increases in interest rates, which it implied on Wednesday by keeping rates unchanged.
According to the CME FedWatch tool, there is a 69% likelihood that the US central bank will increase their interest rate by 25 basis points in the upcoming month as indicated by the markets.
ECB Raises Concerns About Wages
On Thursday, the European Central Bank stated that it may consider increasing interest rates further due to concerns of escalating wages and increased inflation forecasts. Additionally, the ECB implemented a 25 basis points increase to the policy rate, bringing it to 3.5%, marking the first time it has seen such heights since 2001.
The dollar index is a gauge of the strength of the US dollar in comparison to six other significant currencies. Currently, it is around 102.22 and has been hovering close to 102.08, a low point it reached in the previous night.
During Asian trading hours, the yield for the two-year US Treasury increased by 2.8 basis points, a development that is usually consistent with interest rate predictions. The current yield stands at 4.676%.
The cost of oil declined, taking a break from the previous day when futures rose significantly due to positivity regarding a surge in energy demand from China, which is the largest importer of crude oil.
The price of US West Texas Intermediate crude has decreased by 0.34% and is now at $70.38 for each barrel, while Brent is at $75.42, which is a decline of 0.33% from the previous day.
The Nikkei 225 in Tokyo experienced a positive change, increasing 0.66% to close at 33,706.08.
The Hang Seng Index in Hong Kong has increased by 1.07%, reaching a closing value of 20,040.37.
The Shanghai Composite rose by 0.63% to close at 3,273.33.
The stock market index representing the top 100 companies listed on the London Stock Exchange, known as the FTSE 100, has risen by 0.56% to reach a value of 7,670.75 at 9:38am GMT.
The Dow Jones Industrial Average saw a rise of 1.26% at the end of trading on Thursday, finishing at a value of 34,408.06 in New York City.
The People's Bank of China (PBOC) has reduced the lending rate as the country's economy faced a slowdown in May.
Chinese factories are facing challenges as industrial disputes have reached a peak not seen in seven years. These troubles are causing difficulties for the manufacturing industry in China. There are problems within the factories that are causing conflicts between workers and management, and this has led to many strikes and work stoppages. The unrest is impacting production and causing delays in orders. The situation is concerning, and experts are calling for better communication and improved working conditions to address these problems. It is important for factories to provide safe and fair working conditions to maintain a healthy and productive workforce.
If the US bill becomes law, major E-commerce companies in China are at risk of facing tariffs.
Sean O'Meara works as an Editor at Asia Financial and has been involved in the newspaper industry for over three decades. During his career, he has worked as a writer, sub-editor, page designer, and print editor for local, regional, and national publications based in the UK. Sean has a keen passion for sports including football, cricket and rugby, but his expertise in sports finance is particularly noteworthy.
