Asian stock markets showed mixed performance on Friday, weighed down by lackluster Chinese economic data and a pessimistic close on Wall Street overnight. Despite a notable increase in China’s Retail Sales, weaker-than-expected Industrial Production and Fixed Asset Investment data raised concerns about the country’s economic outlook, contributing to market unease.
Investor sentiment remains fragile, with uncertainty surrounding the US Federal Reserve’s (Fed) future interest rate policy. Markets scaled back expectations for a 25 basis point (bps) rate cut in December following comments from Fed Chair Jerome Powell and stronger-than-expected Producer Price Index (PPI) data released on Thursday.
Powell signaled that the central bank was in no rush to reduce rates, pointing to ongoing economic growth, a solid job market, and persistent inflation as reasons to proceed cautiously. Meanwhile, the US PPI increased by 2.4% year-on-year in October, up from 1.9% in September, following the release of similarly sticky consumer inflation data earlier in the week.
The market’s pricing for a 25 bps rate cut next month dropped to around 69% from 83% just a day earlier, according to the CME Group’s FedWatch tool.
The shift in expectations for fewer Fed rate cuts has further fueled a rally in the US Dollar (USD) and US Treasury bond yields, driven by so-called “Trump trades.” With traders now turning their attention to US Retail Sales and Industrial Production data due later today, there is potential for fresh economic cues that could influence future Fed policy. Additionally, a few Fed policymakers are scheduled to speak later in the US session, which could provide further guidance on the central bank’s stance.
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