On Friday, Asia’s stock markets experienced a surge, driven by the anticipation that the world’s central banks will take it easy on tightening their policies further. This optimism was fueled by the news that inflation was beginning to soften. However, concerns about a possible slowdown in economic growth kept these gains in check.
The Monetary Authority of Singapore joined a growing list of central banks that have decided to hit the pause button on future interest rate hikes. This decision came in response to the revelation that the Singaporean economy had slowed down more than was expected in the first quarter of 2023.
In the United States, the data showed that producer price index inflation had eased even further in March, leading to speculation that the Federal Reserve might be ready to pause its rate hike cycle soon. Fed Fund futures prices suggest that the market is pricing in one more rate hike by the Fed in May, followed by a pause in June.
The prospect of a global pause in rate hikes proved to be a shot in the arm for Asia’s markets, with China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes both up by 0.3% and 0.2%, respectively. These gains were also supported by a surprise rebound in exports, which could be a sign of a bigger economic recovery in the country.
Hong Kong’s Hang Seng index, on the other hand, remained stagnant, with local technology heavyweights still struggling with heavy losses from earlier in the week.
Meanwhile, Japan’s Nikkei 225 soared by 1%, given that the Bank of Japan’s stance is more dovish compared to most other central banks.
Singapore’s Straits Times Index went up by 0.3%, while South Korea’s KOSPI and Australia’s ASX 200 both added 0.5%.
Several central banks in the region, including India, South Korea, the Philippines, and Australia, have already made the decision to halt future rate hikes. This trend reflects a cooling in economic growth, as well as a drop in inflation from the peaks seen during 2022. Many central banks in the region had raised interest rates aggressively in 2022 to counter high inflation.
However, there are now concerns that high interest rates could negatively impact economic growth this year. Early indicators already suggest that there has been a cooling in activity, which could worsen with interest rates remaining relatively high in the short term.