Asian stock markets declined before the Lunar New Year, South Korean stocks rose 0.9% against the trend, gold rebounded slightly, and the market is focused on U.S. inflation data.
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Asian stock markets retreated from record highs on Friday as investors locked in profits and reduced positions ahead of the Chinese New Year, while gold and silver recouped part of their losses. With US inflation data about to be released, expectations for the Federal Reserve's rate cuts have been postponed until July, and the impact of US stock AI anxiety on Asian markets is relatively limited for now.
The MSCI Asia Pacific Index fell 0.9% on Friday, marking its first drop in six trading days, with two-thirds of constituent stocks declining. South Korea’s Kospi index bucked the trend and rose 0.9%, demonstrating resilience after US tech stocks fell due to AI-related concerns. Applied Materials surged 13% after hours, boosted by optimistic sales forecasts, signaling a possible easing of cross-asset sell-offs.
Gold rose 0.7% to above about $4,950 per ounce, spot silver expanded its intraday gain to 3%, at $77.46 per ounce. Bitcoin rebounded after four consecutive days of losses. The US 10-year Treasury yield rose 1 basis point to 4.11%, partially recouping Thursday’s safe-haven driven gains.
The market’s focus has shifted to the release of the US January inflation data on Friday. The market expects the core Consumer Price Index (CPI) to rise 2.5% year-on-year. Traders continue to believe there is almost no chance of a Federal Reserve rate cut in March, and a July rate cut is fully priced in. Benjamin Wiltshire of Citigroup warned that the market is too optimistic about US inflation prospects, "We are still in a structurally higher inflation environment."
The South Korea Kospi index rose 0.9% against the trend; India's Nifty and Sensex indexes fell 1%.Australia S&P/ASX 200 index closed down 1.4% at 8,917.6.US 10-year Treasury yield increased 2 basis points to 4.11%.Japan 2-year government bond prices erased losses; yields reversed, decreasing by 0.5 basis points to 1.295%.The yen fell 0.3% to 153.21 dollars.Gold rose 0.7% to above about $4,950 per ounce; spot silver expanded its intraday gain to 3% at $77.46 per ounce.Bitcoin rose 0.8% to $66,335.45.West Texas Intermediate crude fell 0.2% to $62.74 per barrel.
Profit Taking Dominates Ahead of Holidays
The MSCI Asia Pacific Index is up about 12% so far this year; in contrast, on Thursday the S&P 500 erased all its yearly gains and is now down 0.2%. Asia’s technology stocks performed strongly, with the MSCI sector index up 22%. As a proxy for AI investment, South Korea’s Kospi index has risen 32% this year, making it the world’s best-performing stock market.
"Asia has performed well this year, but I’m concerned about global market correlations and tactical pullbacks," said Nick Ferres, Chief Investment Officer at Singapore’s Vantage Point Asset Management.
The yield spread on Asian investment-grade US dollar bonds widened about 2 basis points on Friday. According to credit traders, if this trend persists, it will mark the largest increase since last October, matching the widening trend in US counterpart bond spreads.
AI Shockwaves Relatively Manageable in Asia
The sharp volatility in US markets reflects the high risks caused by the AI boom and the unpredictable chain reactions that cut across industries, regions, and asset classes, highlighting the so-called "AI panic trades." "Software stocks are now trading like banks did in 2008," Nick Ferres remarked, referencing the global financial crisis.
However, compared with AI-induced volatility in the US, the impact on Asian markets has so far been relatively limited. Tomo Kinoshita, global markets strategist at Invesco Japan Asset Management, said "Nonetheless, as AI applications progress over time, a US-like situation will likely eventually appear in Asia as well."
Julia Wang of Nomura stated that the market is in unknown territory regarding AI technology, which means "there could be a lot more volatility ahead." Applied Materials’ strong post-market performance suggests AI-related concerns may be easing.
Inflation Data Moves Rate Cut Expectations
The US January inflation data is a key event for traders on Friday. Core CPI is expected to rise 2.5% year-on-year, excluding food and energy costs. After strong US jobs data on Wednesday, this statistic is receiving extra attention, prompting traders to scale back bets on Fed rate cuts and pushing the rate cut expectation from June to July in currency markets.
Benjamin Wiltshire of Citigroup said the market is overly optimistic about US inflation prospects, making trades betting on rising price pressures look attractive. He noted that investors may underestimate the resilience of US consumers and market inflation expectations may be slightly revised upward. Traders continue to consider the chance of a rate cut at the Fed’s March meeting as extremely low. US Treasuries strengthened Thursday due to New York market safe-haven demand; on Friday, they gave back some of those gains.
In the commodities sector, oil prices have fallen for two consecutive weeks for the first time this year, affected by broader market risk aversion. Gold trading has been highly volatile since Thursday’s sudden sell-off below $5,000, with algorithmic traders seemingly amplifying the precious metal’s drop.
Goldman Sachs has upgraded its rating on Japanese stocks, expecting political stability to provide a boost. This adds another positive factor to Asian markets, although investors remain cautious in the near term.
Continuous updates…
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