Asian Stocks Anticipate Gains Amid Yen Strengthening and US Market Declines

Investors Focus on Alibaba's Revenue Growth and Bank of Japan Rate Hikes / AP Photo/Eugene Hoshiko, File

Asian stock markets are poised for positive movement as they respond to mixed signals from the US financial landscape, where shares have dipped from record highs following a disappointing earnings forecast from Walmart, the world's largest retailer. This downturn has heightened concerns regarding the overall economic health, prompting traders to reassess their strategies. In contrast, Australian stocks experienced an uptick, alongside equity index futures in Hong Kong. Notably, a benchmark of US-listed Chinese stocks advanced after Alibaba Group Holding Ltd. reported its most robust revenue growth in over a year, signaling a potential shift in investor sentiment.

In Japan, stock futures took a hit as the yen crossed the significant threshold of 150 per dollar for the first time this year, reflecting a strengthening currency that has garnered attention from traders. As investors across Asia look to recover from recent losses in Chinese equities, many are optimistic about a resurgence, particularly as Asian stocks have surged by 2.5% this month, outpacing global averages. This rebound is largely fueled by enthusiasm surrounding China's DeepSeek AI, which has drawn substantial investment into the technology sector.

Chris Weston, head of research at Pepperstone Group in Melbourne, noted that current market dynamics indicate a modest "sell US risk" trend, as traders are influenced by the momentum seen in the China and Hong Kong markets. Alibaba's impressive earnings have reinforced the narrative of capital migrating from a concentrated US tech investment toward opportunities in China's AI sector.

The yen's strength is underscored by expectations that the Bank of Japan may raise interest rates sooner than anticipated. Recent data indicates that traders are pricing in an approximately 84% likelihood of a 25 basis point hike at the July meeting, a notable increase from a 70% chance earlier in the month. This speculation follows the revelation that Japan's inflation accelerated more than forecasted, with consumer prices excluding fresh food rising 3.2% year-over-year in January, marking the most significant increase since June 2023.

According to Carol Kong, a strategist at Commonwealth Bank of Australia, the latest Consumer Price Index (CPI) figures, coupled with fourth-quarter GDP and wage data, justify the recent adjustments in Bank of Japan rate hike expectations. She predicts that the USD/JPY exchange rate could reach the March forecast of 149 sooner than previously anticipated.

In the US, the S&P 500 index experienced a 0.4% decline as Walmart's shares fell—this marked the first significant retailer to release results post-holiday season. The company’s chief financial officer acknowledged ongoing uncertainties related to consumer behavior amid fluctuating global economic conditions. This comes on the heels of retail sales data that indicated a sudden consumer pullback, raising concerns about future growth. Notably, major banks such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. also faced declines, each falling by over 3.8%.

Typically, retailers like Walmart perform well during economic downturns, often beginning the year with conservative forecasts. However, persistent inflation and elevated borrowing costs are forcing consumers to rely increasingly on credit cards and debt, with many of these loans beginning to show signs of distress. Matt Maley from Miller Tabak + Co. remarked that Walmart's report exacerbates concerns about consumer stability, especially considering recent disappointing figures on consumer confidence and weaker-than-expected retail sales data.

Elsewhere in the financial landscape, the yield on 10-year Treasuries fell by three basis points to 4.51%, contributing to a flattening of the yield curve. Treasury Secretary Scott Bessent indicated that any plans to increase the share of longer-term Treasuries in government debt issuance are currently distant due to ongoing challenges, including persistent inflation and the Federal Reserve's quantitative tightening initiatives.

Australia's central bank is keeping a close eye on labor market conditions, as sustained tightness could suggest a strengthening economy. Governor Michele Bullock stated that policymakers are not "pre-committed" to any specific interest rate trajectory at this time.

In commodities, oil prices are on track for their largest weekly gain since early January, driven by increasing uncertainty surrounding supply. Meanwhile, gold prices have remained stable after recently achieving record highs, reflecting ongoing investor interest in safe-haven assets amid market volatility.