Asian Stocks Rise on US Tech Rally and Cooling Wholesale Inflation
Asian equities advanced as easing US wholesale inflation and hyperscaler spending bolstered risk appetite, though diverging central bank policies and elevated long-term bond yields continue to test investor sentiment.
Regional stock markets moved higher on Friday, driven by a 0.4% gain in the MSCI Asia Pacific index and a nearly 3% surge in South Korea’s Kospi. These advances followed a robust session for US equities, where hyperscaler spending propelled the Nasdaq 100 to its highest level since late June and pushed the S&P 500 up 0.7% to a record.
Investor sentiment also benefited from a sharper-than-expected slowdown in American wholesale inflation. The producer price index for July registered a 4.7% year-on-year increase, unchanged from the prior month but marking a significant drop from June's 5.5% reading.
According to CFRA analyst Arun Sundaram, this cooling inflation trend and a recent weak employment report could allow Fed Chair Kevin Warsh to maintain current borrowing costs. Yet Sundaram cautioned that the monetary policy outlook remains "far from settled," warning market participants to prepare for "several potential plot twists."
Policymakers at the central bank continue to clash over the appropriate trajectory for interest rates. While Richmond Fed President Tom Barkin favors pausing as price pressures ease, Cleveland Fed President Beth Hammack continues to advocate for further tightening. BofA Securities economist Stephen Juneau observed that traders are increasingly discounting future hikes due to dovish indicators, but he emphasized that upcoming September data will be "pretty critical."
Beneath the surface of the equity rally, severe stress in the bond market highlights the long-term cost of persistent fiscal deficits. The US Treasury recently sold 30-year debt at the highest yield in 25 years, illustrating the steep premium buyers demand to fund government spending. Furthermore, long-term rates have climbed above 5% this year, driven by heavy sovereign issuance and massive corporate borrowing needed to fund the artificial-intelligence sector.
Currency markets in Asia are bracing for monetary tightening as the Bank of Japan prepares to adjust its policy stance. The yen hovered near 159.50 against the dollar, maintaining its position despite reports that Prime Minister Sanae Takaichi’s administration backs an interest-rate increase. Sources familiar with the situation suggest a hike could arrive in September or October to curb import-driven inflation and validate recent joint currency interventions with the US.
On the trade front, the Trump administration introduced a 100% tariff on imported unmanned aircraft systems and related parts to diminish reliance on foreign drone manufacturers. In commodity markets, Brent crude stabilized near $87.20 a barrel following a 2% decline that ended a six-day winning streak.
