Weekly Market Highlight: US Inflation Cheer Drives Stocks to Best Week in 2023

Asian Equities Set for Record-Breaking Week Amid US Inflation Slowdowns

Asian markets are poised to end the week on a high note, marking their most successful week of the year. The latest data indicating a deceleration in US inflation has fueled optimism that the Federal Reserve will halt rate hikes, sparking a robust rally across global markets.

Encouraging Signs of Inflation Deceleration

Investors welcomed the smallest increase in US factory gate inflation in almost three years. This positive development follows a 12-month slowdown in US consumer price inflation, bringing it to its lowest annual rate in over two years.

Anticipating a Smooth Economic Transition

While the full impact of the 500 basis points of rate hikes implemented by the Federal Reserve since March of last year is yet to be fully realized, the prevailing optimism surrounding a "soft landing" scenario has driven down the value of the US dollar and propelled asset prices upward.

Asia's Economic Indicators and Market Impact

Despite the release of key Asian economic indicators on Friday, such as Singapore's GDP, Japanese industrial production, and Indian wholesale price inflation, market sentiments remain largely unaffected. The prevailing bullish outlook appears to overshadow any potential disappointments.

Global Market Conditions Benefit from Weaker Dollar and Lower Bond Yields

The decline in the value of the US dollar, coupled with decreasing US bond yields, has created favorable financial conditions for global markets, particularly emerging economies. As a result, MSCI's World stock index surged by more than 1% on Thursday, reaching its highest point since April of last year. Additionally, both the S&P 500 and Nasdaq reached fresh 15-month highs, while the MSCI Asia ex-Japan index experienced a notable jump of over 2%.

Asia-Pacific Shares' Impressive Performance

The broadest index of Asia and Pacific shares has witnessed a remarkable 5% increase this week, positioning it for the most outstanding performance since November. Notably, this surge compensates for the relatively lacklustre year-to-date gains, emphasizing the significant gap between these markets and their US, European, and Japanese counterparts.

China's Struggles Impacting Global Markets

China's economic woes, including sluggish growth, deflation, and a complex interplay between a devaluing exchange rate and widespread financial market sell-offs, have significantly weighed down Asia-Pacific shares. The latest economic signals from China continue to dampen market sentiment, with a 12.4% slump in exports in June—the most significant decline in three years—and a 6.8% drop in imports, both exceeding analysts' expectations.

Positive Market Response to Beijing's Tech Sector Reassurance

Despite the prevailing challenges, Chinese shares managed to rally over 1% following an announcement from Beijing signaling the end of its tech sector crackdown. Premier Li Qiang held discussions with leading tech firms, urging them to take greater measures to support the economy.

Ongoing Dialogue Between China and the US

High-level talks between Chinese and US officials persist, addressing various issues, including trade. This ongoing dialogue is expected to mitigate geopolitical risks, albeit to a limited extent.

Key Developments for Friday's Market Direction



Market participants eagerly await several key developments that could shape Friday's market trends, including:

• Singapore's Q2 GDP report
• Japan's May industrial production figures
• India's June wholesale price inflation data

As these reports are released, market dynamics may experience shifts based on the outcomes, potentially influencing investor sentiment and asset valuations.

In summary, Asian equities are experiencing their best week of the year, driven by positive market sentiment following signs of slowing U.S. inflation. The weakening dollar and falling U.S. bond yields have created favorable financial conditions globally. However, China continues to face economic challenges, while ongoing dialogue between Chinese and U.S. officials may help reduce geopolitical risks. Investors should closely monitor key developments such as Singapore's GDP, Japan's industrial production, and India's WPI inflation figures for further insights into market trends.