Asian stock markets witnessed a mixed trading session on Friday as investors digested divergent inflation data from the United States and China. While Japan's Nikkei 225 continued its impressive rally, other regional markets grappled with uncertainty. Investors started the day absorbing mixed inflation readings from the US and China. Wall Street's weak performance overnight was partly attributed to the US Consumer Price Index (CPI) data, which revealed slightly higher-than-expected inflation growth in December. This report cast doubts on the possibility of the Federal Reserve initiating early interest rate cuts this year.
However, despite the CPI figures, traders were still maintaining their bets on a potential rate cut in March, as indicated by the CME Fedwatch tool. This sentiment helped cushion major losses in both US and Asian stock markets, as market participants continued to anticipate a reduction in US interest rates later in the year.
Nikkei 225 Shines as Japan Leads the Way
Japan's Nikkei 225 emerged as the standout performer in the Asian market this week, surging by 1.2% on Friday to reach a remarkable 34-year high, nearing the 35,500 point mark. The rally in the Nikkei was largely driven by expectations of an ultra-dovish stance from the Bank of Japan, especially in the wake of the need for additional stimulus measures following a devastating earthquake.
Despite signs of economic weakness in Japan, such as the recent data showing a larger-than-expected shrinkage in the country's current account in November and soft inflation and wage growth readings earlier in the week, the Nikkei was set for an impressive 6.2% gain for the week. The TOPIX index, which encompasses a broader range of Japanese stocks, also experienced a 0.3% rise on Friday and was poised for a 4.1% weekly gain, reaching its highest level since 1990.
China Sees Modest Rise Amid CPI Data
Chinese stocks experienced a modest uptick as both the Shanghai Shenzhen CSI 300 and the Shanghai Composite indexes rose by 0.4% and 0.5%, respectively. This recovery followed a period of multi-year lows and was fueled by data indicating a slight increase in CPI inflation for December. Hong Kong's Hang Seng index also registered a 0.1% gain.
While broader Chinese inflation still remained in disinflationary territory, the mild uptick in CPI inflation provided some optimism that consumer spending was gradually recovering from the lulls caused by the COVID-19 pandemic. This increase was particularly driven by higher holiday spending, especially in the areas of travel and shopping. However, the sustainability of this trend remains uncertain.
The Chinese economy's overall outlook remained fragile, as Producer Price Index (PPI) inflation continued to contract for the fifteenth consecutive month in December. Attention now shifts to the release of crucial fourth-quarter gross domestic product (GDP) data next week.
Broader Asian Markets Remain Cautious
Beyond Japan and China, broader Asian markets experienced a more cautious sentiment, mirroring Wall Street's performance overnight. Most regional stocks were on track for mild weekly losses as doubts about potential US interest rate cuts kept investors wary of risk-driven assets. Australia's ASX 200 fell by 0.1%, while South Korea's KOSPI lost 0.2%. In India, futures for the Nifty 50 index indicated a flat open, influenced by weaker profit figures from Infosys Ltd for the December quarter. However, Infosys' American Depository Receipts (ADRs) surged nearly 4% in overnight trading.
Investor focus now turns to India's CPI inflation data later in the day, which will provide further insights into the economic landscape in the region.
