A surge in big tech earnings after market close propelled a rebound in US futures, driving cautious optimism on Asian markets Friday morning amid a deluge of economic data.
Shares climbed across Asia, led by gains in Hong Kong and Japan. Stocks also rose on mainland China after data showed industrial profits, while softer than August, still grew in September.
The after-hours rally in names like Amazon and Intel fueled a sharp turnaround in Nasdaq 100 futures. The underlying index sank 1.9% Thursday to its lowest level since May, dragging the S&P 500 to the brink of correction territory at the close. But the post-market tech surge now points to an upbeat open on Wall Street, as traders shake off recent market jitters.
“Higher US GDP growth, a less dire industrial profit slump in China and earnings beats by US tech giants bake into a long-awaited relief for stressed investors,” said Hebe Chen, an analyst at IG Markets in Melbourne. “As we approach the end of the month, investors are holding their breath for next week’s FOMC meeting, which is poised to set the tone for the remainder of the year.”
Still, the rebound faces an immediate test from US economic data on tap Friday, including the PCE deflator, the Fed’s preferred inflation gauge. Personal spending, income and University of Michigan consumer sentiment are also due. The reports will help fine-tune expectations for the Fed’s policy meeting next week, where a fourth straight 75 basis point hike is expected.
Cautious Optimism
Overnight, Treasury yields held steady after sliding Thursday on the back of a solid 7-year bond auction and a rise in jobless claims indicating cracks in the labor market. The PCE deflator Friday will firm up bets on whether policymakers downshift from jumbo to standard hikes in December.
Still, swaps show a one-in-three chance of additional tightening beyond next week, per Bloomberg data. And hawkish Fed rhetoric continues to suggest overtightening is a risk worth taking to tame inflation running near 40-year highs.
That’s kept recession jitters bubbling despite sturdy US GDP growth in the third quarter. The Fed’s war on inflation has cemented downturns in Europe and China as global spillover effects.
Geopolitical tensions are also testing the rebound’s resilience. Israel escalated strikes on Hamas after claiming responsibility for killing a senior operative. Iran meanwhile has ramped up hostile rhetoric as the US weighs a military response to an attack on US troops in Syria attributed to Iranian proxies.
The developments have fueled a further spike in oil prices over renewed supply concerns. However, the potential Iran retaliation has had minimal sway on market sentiment so far.
Yen Steady as Japan CPI Accelerates
In currency markets, the dollar drifted lower while the yen held steady after Japan’s core CPI unexpectedly accelerated in September. It marked the first rise in four months despite the Bank of Japan’s unabated stimulus pushing down the yen.
Finance Minister Shunichi Suzuki reiterated Tokyo is watching yen moves with a “high sense of urgency.” The remarks come as the yen tests levels against the dollar last seen in 1990 on growing divergences between Japanese and US monetary policy.
Investors are also tracking a meeting between China’s Foreign Minister Wang Yi and US Secretary of State Antony Blinken. Wang said the countries need “in-depth” talks to address common interests and reduce misunderstandings, Xinhua reported.
Markets remain alert for potential friction, however, as President Biden continues to take a hard line on China despite some expectations November’s Xi-Biden G20 meeting could bring a thaw.
For now, the focus remains on US data and earnings into the weekend. Solid reports could cement the rebound in stocks and keep recession fears at bay. But any negative surprises risk deflating the fragile optimism that has emerged from tech’s after-hours rally.
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