The Asian stock market rallied on Friday, May 1st, driven by strong corporate earnings despite ongoing concerns over economic weakness. MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.94%, but still set to end the month 1.4% lower. The Nikkei in Japan rose 0.51%, and Australia's S&P/ASX 200 index gained 0.33%. Meanwhile, US stocks closed higher on Thursday following positive results from major tech companies such as Meta Platforms, Microsoft, and Alphabet.
However, geopolitical tensions and economic concerns have dampened investor sentiment in recent weeks. Economic data from the US released on Thursday showed that the country's economy slowed more than expected in the first quarter, while price growth came in higher than economists had projected. The core PCE price index, one of the measures of inflation tracked by the Federal Reserve, rose by 4.9% rate, compared to 4.4% in the previous quarter. Although initial claims for unemployment benefits fell, indicating continued tightness in the labor market, which could further fuel inflation.
These stubborn inflation figures are giving the Federal Reserve little room to take heed of the nascent slowing in activity and the labor market should it continue to develop, according to Taylor Nugent, an economist at National Australia Bank. The markets are now pricing in an 85% chance of the Fed raising interest rates by 25 basis points at its meeting next week. This hike is expected to be the last in the US central bank's fastest monetary policy tightening cycle since the 1980s.
Investors are now focused on Japan's central bank policy decision. At his debut policy meeting, new central bank governor Kazuo Ueda is expected to maintain the short-term interest rate target of -0.1% and a pledge to guide the 10-year bond yield around zero. The BOJ will discuss conducting a comprehensive examination of its past monetary easing steps and revise its guidance on future policy path. The focus will be on the outlook/guidance and any potential review of the central bank's longer-term performance and monetary policy settings.
Meanwhile, the yield on 10-year Treasury notes was down 0.8 basis points to 3.520%, after recording its biggest intraday gain since March on Thursday as investors weighed the looming debt ceiling showdown in Washington. The currency market was slightly subdued ahead of policy decisions, with the dollar index up 0.02% against six rivals, the euro up 0.03% to $1.103, the Japanese yen down 0.03% to 133.99 per dollar, and sterling trading at $1.2495, up 0.06% on the day. Spot gold dropped 0.1% to $1,985.39 an ounce, and US gold futures fell 0.15% to $1,986.90 an ounce.
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