Asian markets are rallying as investors digest encouraging economic data from Japan and China, coupled with recent US inflation figures that have bolstered hopes for interest rate cuts. Japan’s economy grew by 0.8% quarterly and 3.1% annually in the second quarter of 2024, surpassing expectations and marking the strongest quarterly growth since Q1 of 2023. This robust performance was primarily driven by a 1% increase in private consumption, the first such rise in over a year.The positive economic data from Japan has lent support to the Bank of Japan’s recent decision to raise interest rates and may pave the way for further monetary tightening. Analyst Marcel Thieliant from Capital Economics noted, ‘The worst for Japanese consumers may be behind us,’ although he cautioned that the central bank might continue to raise interest rates.In China, signs of economic stabilization have emerged, with retail sales growing by 2.7% in July, exceeding forecasts. This data has helped alleviate concerns about stagnation in the world’s second-largest economy.The recent US inflation data, showing a 2.9% year-over-year increase in July, has further strengthened expectations for Federal Reserve rate cuts. While the likelihood of a 50-basis-point cut in September has diminished, market pricing for a 100-basis-point reduction by year-end remains strong.Global stock indices have responded positively to these developments. Japan’s Nikkei 225 rose 0.9% to 36,726.64, while China’s Shanghai Composite index jumped 1.0% to 2,877.73. In the US, the S&P 500 gained 0.4%, and the Dow Jones Industrial Average surpassed the 40,000 level for the first time in nearly two weeks.Investors are now awaiting US retail sales and industrial production data, due later today, for further insights into the health of the world’s largest economy. These figures, along with upcoming labor market data, are expected to play a crucial role in shaping the Federal Reserve’s monetary policy decisions in the coming months.
Key points
- Japan’s economy grew 3.
- China’s retail sales grew 2.
- Recent US inflation data has strengthened expectations for Federal Reserve rate cuts.
- Global stock indices, including Nikkei 225 and Shanghai Composite, have seen significant gains.
1% annually in Q2 2024, exceeding expectations and potentially supporting further interest rate hikes.
7% in July, suggesting economic stabilization.
Contradictions👾While some sources suggest that the Bank of Japan may continue to raise interest rates, others indicate that the strong GDP growth may ease the policy space for the BoJ’s interest rate hike cycle.
