Asian shares rally, Yen weakness sparks japanese gain

Asian stocks edged higher on Wednesday, buoyed by expectations of lower interest rates globally and a weaker yen. However, looming uncertainty surrounding U.S. inflation data later this week tempered investor enthusiasm.

Japan's Nikkei 225 index led the gains, surging nearly 1% and nearing its all-time high. This rise stemmed from a weakening yen, which fell to a 33-year low against the dollar. A weaker yen makes Japanese exports more attractive overseas, boosting the profitability of Japanese companies and lifting investor sentiment toward the country's stock market.

We think the dollar's rebound reflects the more explicitly dovish stance of other major central banks – in particular the SNB and the BoE

Jonas Goltermann, Deputy Chief Markets Economist, Capital Economics

Fed Rate Cut Expectations Drive Global Markets

The key driver behind global optimism for lower interest rates is the anticipated dovish stance of central banks around the world. Based on current market predictions, the U.S. Federal Reserve is mainly expected to cut rates in June. However, this outlook hinges on upcoming inflation data from the United States.

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The release of the Core Personal Consumption Expenditures (PCE) price index for February is scheduled for Friday. A significant increase in this inflation gauge could alter market expectations and delay a Fed rate cut. Additionally, Fed Chair Jerome Powell's speech at an economic conference on the same day will be closely watched for any signals regarding future monetary policy decisions.

The bumpy road that the Fed has been talking about suddenly starts to look more like a mountain trek.

Tony Sycamore, Market analyst at IGCom

Central Banks Take Center Stage

Beyond the U.S., Europe is also on the radar for inflation updates. France, Italy, Belgium, and Spain are all set to release their inflation figures this week, leading up to the announcement of the EU-wide Consumer Price Index on April 3rd.

Meanwhile, the Swedish Riksbank is expected to maintain its current interest rate of 4.0% during its policy meeting on Wednesday. While no rate change is anticipated, markets hope future decisions will hint at potential easing.

This expectation of declining interest rates globally has been a major contributor to the stock market's strong performance so far this year. The S&P 500 index has already climbed nearly 10% in 2024, fueled by this dovish monetary policy outlook.

Geopolitical Tensions and Supply Issues

Early trading on Wednesday saw relatively muted movement in the futures markets for both the S&P 500 and Nasdaq indexes. The broader MSCI Asia Pacific Ex-Japan index also registered a modest gain of 0.1%, hovering near its eight-month high.

Despite Tuesday's slight dip, Japan's Nikkei 225 remains near its record peak, fueled by the weaker yen and positive corporate earnings reports.

It's important to note that the Fed isn't alone in its dovish stance. Other major central banks, including the Swiss National Bank (SNB) and the European Central Bank (ECB), have also hinted at potential future rate cuts. Additionally, China's central bank, the PBOC, recently surprised markets by allowing the yuan to weaken against the dollar.

The dollar continued climbing against the yen on Wednesday, trading at around 151.49 yen. However, traders remain wary of pushing the exchange rate past 152.00, as Japanese authorities have previously expressed concerns about excessive yen fluctuations.

The Swiss franc's strength following the SNB's surprise rate cut also weighed on the euro, which dipped to $1.0817. Gold prices also struggled to regain momentum, falling back below their record highs set last week. Investors are carefully weighing the potential impact of growing interest rates and a stronger dollar on the precious metal.

On the other hand, crude oil prices received support from ongoing geopolitical tensions and supply disruptions. The destruction of Russian oil refineries by Ukraine, coupled with a decrease in operational drilling rigs in the United States, contributed to a rise in oil prices. Brent crude futures rose to $85.79 a barrel, while West Texas Intermediate (WTI) crude reached $81.15 per barrel.

With central bank actions and U.S. inflation data taking center stage, investors remain cautious. Even minor shifts in these areas could significantly impact market dynamics in the coming days.