Asian Stock Market: Traces firmer S&P 500 Futures amid sluggish yields, off in Japan

• Market sentiment improves in Asia-Pacific zone despite Japan’s holidays.
• Softer US inflation expectations, upbeat data and US President Joe Biden’s hopes of no imminent nuclear war favors the sentiment.
• Light calendar, mixed closing of Wall Street challenge momentum traders.

Risk appetite improves in the Asia-Pacific zone amid early Thursday, despite being off in Japan, as traders reassess the hawkish Fed concerns and the geopolitical fears amid a quiet session. Also likely to have favored the mildly upbeat sentiment could be the latest retreat in the US inflation expectations and easing fears of recession.

Amid these plays, MSCI’s index of Asia-Pacific shares outside Japan rises half a percent while bouncing off the monthly low. On the same line, shares in Australia, China and New Zealand all print mild gains by the press time.

On a broader front, S&P 500 Futures bounce off the monthly low to print mild gains around 4,020 while the yields are mostly unchanged amid Japan’s holiday, following a retreat from the three-month high the previous day.

It’s worth observing that upbeat Aussie Private Capital Expenditure for the fourth quarter (Q4) and the Bank of Korea’s (BoK) inaction failed to impress the Asia-Pacific share traders.

That said, recently firmer global activity numbers and comments from the key central bank officials, mainly from the West, have raised hopes that the recession is less likely to happen. Even if it does in a certain part of the world, the effects will be mild and short-lived.

Additionally favoring cautious optimism is the recent retreat in the US inflation expectations. That said, the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) signal a pullback in the US inflation expectations by retreating from the multi-day top.

It should be noted that the latest Federal Open Market Committee’s (FOMC) Monetary Policy Meeting Minutes stated that all participants agreed more rate hikes are needed to achieve the inflation target. The same initially triggered the market’s risk-off mood before the details suggested that the policymakers also discussed going easy on the rate hike trajectory, which in turn highlights softer inflation expectations as the key concern for the recent improvement in mood.

Elsewhere, comments from US President Joe Biden were also responsible for the latest mildly upbeat sentiment as he thinks that his Russian counterpart isn’t up to using nuclear arms by backing off an international treaty. However, the fears surrounding the Ukraine-Russia war are far from over, with the latest edition of the West and China escalating the matter to the worse. That said, the Wall Street Journal (WSJ) recently said that the US is considering the release of intelligence on China’s potential arms transfer to Russia. Previously, the China-Russia ties seemed to have escalated the geopolitical woes as the US strongly criticized such moves and favored the rush towards risk safety.

Looking ahead, a light calendar and mixed concerns can keep troubling traders but the US Personal Consumption Expenditures (PCE) details for the fourth quarter (Q4), as well as the preliminary readings of the US Q4 Gross Domestic Product (GDP), should entertain them.

Also read: Forex Today: Fed’s hawkishness boosts the US Dollar