On Friday (November 17th), Asian stock markets took a slight break as a series of weak economic data in the United States lost some of their momentum, but also significantly boosted the bond market, while suppressing oil prices and boosting inflation prospects.
The Morgan Stanley Capital International (MSCI) Asia Pacific stock market index, the broadest outside of Japan, fell 0.67% from its two month high, but still rose 2.7% this week.
Brent crude oil and US crude oil both fell nearly 5% to a four month low on Thursday, attributed to concerns about the economy and supply. However, technical selling may have played a role when the $80 level was breached.
Traders suspect that speculative selling was driven by algorithms and funds following the trend, with most of the decline occurring within an hour of trading.
Currently, Brent crude oil futures have risen by 12 cents to $77.54 per barrel, which is still a long way from the high of $97.69 hit at the end of September. US crude oil futures rose 13 cents to $73.03 per barrel.
Regardless of the reason, this sharp drop should bring greater downward pressure to global consumer prices and strengthen expectations for policy relaxation next year.
The bond market is still cheering for this week's mild inflation report in the United States, while the futures market currently expects the possibility of another rate hike by the Federal Reserve to be almost zero, with a 34% chance of a rate cut as early as March.
The market expects a 98 basis point interest rate cut next year, compared to 73 basis points a week ago.
As labor market activity slows down and inflation expectations further decline, we expect the Federal Reserve to remain stagnant, followed by interest rate cuts in the second half of 2024 to avoid an economic recession, "JPMorgan analysts wrote in a report
The report states: "We expect the policy interest rate to decrease by 100 basis points in the second half of 2024, drop to 4.5% by the end of the year, and then stabilize at 3.5% in the first quarter of 2025.
Since the yield of two-year treasury bond fell 21 basis points this week to 4.85%, treasury bond bond investors are now seeking to reflect this in their prices. This is their best weekly performance since March.
The yield of 10-year treasury bond is 4.45%, which has dropped by 18 basis points so far this week, down sharply from the high of 5.02% hit a month ago.
The market has undergone significant changes in the pricing of the Federal Reserve, making the US dollar appear weak. The euro rose to $1.0855 against the US dollar, with a 1.6% increase so far this week.
The US dollar even fell against the Japanese yen to 150.63, far from the peak of 151.92 hit earlier this week. The US dollar performed well against commodities related currencies such as the Canadian dollar, which were dragged down by the decline in oil prices.
The decrease in bond yields is beneficial for gold, with gold prices rising to $1985 per ounce.
