Asian Stocks Rebound After Upbeat US Economic Data: Markets Wrap

(Bloomberg) — Asian stocks advanced as upbeat US growth data suggested the Federal Reserve is engineering a so-called soft landing for the economy.

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Equities in Australia and South Korea rose while those in Japan inched up. The MSCI Asia Pacific Index headed for a fourth month of gains as traders awaited a key US inflation report due Friday. Japan’s 10-year bond futures opened lower after data showed inflation in Tokyo quickened in August, backing the case for a further normalization of monetary policy.

Chinese equities may be in focus after the yuan strengthened Thursday and the Nasdaq Golden Dragon Index climbed 2.6%. The S&P 500 closed little changed overnight, weighed down by Nvidia Corp. after its underwhelming earnings, while the Dow Jones Industrial Average ended at an all-time high.

A rally Friday will cap the best month for US and global stocks since June amid bets the Fed will ease policy as it tames inflation without the economy tumbling into recession. US output grew at a slightly stronger pace in the second quarter than initially reported, reflecting an upward revision to consumer spending that more than offset weaker activity in other categories.

“It looks to me like a healthy economy where the Fed can start cutting rates not because of recession risk, but because of disinflation,” Ron Temple, chief market strategist at Lazard Asset Management, said on Bloomberg TV. “We’re decelerating from a very strong economy to a strong economy and I don’t see evidence of recession risk going up materially.”

While the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, is due later in the day, the currency market is turning its focus to next week’s US employment data to confirm whether the Fed will cut rates in September.

The Bloomberg Dollar Spot Index was little changed early on Friday, though gains earlier this week mean it is set to end up for the first week in five.

Australian bonds edged lower, tracking US Treasuries which held losses after a $44 billion sale of seven-year notes was a bit soft. The yield on 10-year bonds advanced three basis points to 3.86%, leaving the spread between two-year notes — a closely watched gauge – just shy of regaining a normal, positive slope. Swap traders slightly trimmed bets on Fed easing, while still expecting around 100 basis points of cuts for 2024.

In commodities, oil was steady after jumping Thursday on positive US economic data and worsening supply disruptions in Libya. Meanwhile, gold slipped.

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