Asian shares experienced mixed results on Friday, despite positive news about the U.S. economy. Japan's benchmark index, the Nikkei 225, fell 1.3% after data revealed that inflation was slowing faster than expected. The key measure of inflation dropped to 1.6% in January from 2.4% in December, alleviating pressure on the Bank of Japan to tighten its ultra-loose monetary policy. The central bank has been striving to achieve a 2% inflation target. Experts expect inflation to rebound above 2% in February.
Chinese markets also ended a winning streak, impacted by government measures to stabilize share prices and the property sector. Hong Kong's Hang Seng index declined 1.6% to 15,954.86, while the Shanghai Composite remained relatively unchanged, edging up 0.1% to 2,910.22. In contrast, South Korea's Kospi rose 0.3% to 2,478.56. Australian markets were closed for a national holiday.
Meanwhile, Wall Street displayed positive momentum on Thursday, with the S&P 500 reaching a record high for the fifth consecutive day, closing at 4,894.16 and gaining 0.4%. The Dow Jones Industrial Average climbed 0.6% to 38,049.13, and the Nasdaq composite rose 0.2% to 15,510.50.
Driving the market was IBM, whose shares surged 9.5% after reporting better-than-expected profits for the latest quarter. Four out of five stocks in the S&P 500 experienced gains alongside IBM. However, Tesla's drop of 12.1% restrained overall market gains. The electric vehicle manufacturer reported earnings and revenue that fell short of forecasts, while also issuing a warning about lower sales growth in the coming year.
The focus on Wall Street was primarily centered on a report indicating that the U.S. economy continues to surpass expectations, debunking earlier forecasts of a recession due to high interest rates. The initial estimate by the U.S. government showed that the economy grew at a 3.3% annual rate in the last quarter of 2023, surpassing the 1.8% growth anticipated by economists. The robust performance of the economy is anticipated to drive corporate profits, which play a crucial role in determining stock prices.
Moreover, the report confirmed that inflation remained under control at the end of 2023. This has raised hopes that inflation has cooled sufficiently from its peak in the summer of 2023, enabling the Federal Reserve to consider interest rate cuts this year. Such a move would ease pressures on financial markets and potentially boost investment prices.
“The headline data are the perfect mix of strong consumption and dropping inflation,' said Jamie Cox, managing partner for Harris Financial Group. “This is exactly what you want to see if you are running the Fed and want to move rates lower this year.”
In terms of employment, a separate report indicated that more U.S. workers filed for unemployment benefits last week. However, the number remains low compared to historical figures, indicating that the job market remains resilient.
These developments in the U.S. economy impacted the bond and currency markets. Treasury yields fell as expectations of rate cuts grew. The yield on the 10-year Treasury slipped from 4.16% to 4.10% following the release of the economic report. In contrast, the yield was 5% in October 2023, its highest level since 2007.
Regarding corporate earnings, numerous companies in the S&P 500 reported their latest results on Wednesday or Thursday. American Airlines saw its shares rise 10.3% after reporting stronger-than-expected profits for the quarter. Conversely, Humana experienced a decline of 11.7% after reporting worse results for the end of 2023 than anticipated.
In energy trading, benchmark U.S. crude declined by 50 cents to $76.86 a barrel on the New York Mercantile Exchange. Similarly, Brent crude, the international benchmark, fell by 54 cents to $81.42 a barrel.
In currency trading, the U.S. dollar inched up to 147.85 Japanese yen from 147.64 yen. The euro, on the other hand, dropped to $1.0817 from $1.0848.
