- Asian-Pacific stock markets generally rebounded on Tuesday, with the Korea Composite Stock Price Index (KOSPI) and Japan's Nikkei 225 Index (NI225) attracting bargain hunting after significant corrections, while a temporary ceasefire agreement between Israel and Iran eased market risk aversion.
- A strong U.S. non-farm payroll report for May prompted a reassessment of global tightening expectations, with the monetary market already pricing in the risk of a Federal Reserve (Fed) rate hike. The yield on the two-year U.S. Treasury note remained in the high range of 4.170%, putting pressure on fixed-income assets.
- China's import and export growth in May far exceeded expectations, with exports up 19.4% year-on-year and imports up 27.4%, indicating resilience in the supply chain as it expands into new markets. Meanwhile, the focus in the tech sector shifts to the upcoming earnings report from Oracle Corporation (ORCL:US) and the recent IPO filing by OpenAI.
Asian-Pacific Equity Assets Attract Bargain Hunters
After experiencing significant valuation corrections, major Asian-Pacific stock indices showed a technical rebound on Tuesday. The Korea Composite Stock Price Index (KOSPI) rose 3.4%, gradually recovering from the over 8% drop in the previous trading session due to high retail holdings and valuation pressure. Analysts at Bank of America (BofA) noted that global breadth rules indicate nearly half of the stock markets are in an overbought state, with the Korean and Taiwanese markets showing the most significant signs. Japan's Nikkei 225 Index (NI225) also rebounded by 0.9% after a 3.9% drop the previous day. Although the overall index rose due to a recovery in core sectors like semiconductors, market analysts cautioned that many S&P 500 component stocks remain weak, indicating that the current market rebound is relatively narrow-based. European major stock index futures also maintained slight adjustments during the Asian session.
Tightening Policy Expectations Pressure Fixed Income
Expectations of a shift towards tighter global macroeconomic policies are rapidly materializing in the bond market. The unexpectedly strong U.S. non-farm payroll data for May, combined with rising energy costs potentially pressuring inflation, prompted investors to factor in a higher policy rate path. Interest rate futures market data shows that the probability of a Fed rate hike at the October meeting has risen to about 60%, and the expectation of a 25 basis point hike in December is almost fully priced in. The yield on the two-year U.S. Treasury note stabilized at a high of 4.170%, having previously touched a new high of 4.201%. Meanwhile, the European Central Bank (ECB) is expected to raise rates by 25 basis points to 2.25% at this week's meeting, a move that has been fully absorbed by the market, with terminal rates possibly advancing to 2.5% or 2.75% by year-end. Globally, 46 central banks still have inflation rates above their set targets.
Trade Data Exceeds Expectations and Tech Stocks Under Scrutiny
China's latest trade data for May exceeded market median expectations, with exports growing 19.4% year-on-year and imports surging 27.4%. This strong data reflects that despite moderate internal demand, China's foreign trade chain shows structural adaptability in dealing with external tariff barriers. In the tech sector, Apple Inc. (AAPL:US) introduced a Siri AI upgrade at its annual Worldwide Developers Conference (WWDC), but the stock price did not see a significant boost. Meanwhile, AI startup OpenAI has secretly filed for a U.S. IPO, fueling an equity financing boom in the AI sector alongside competitor Anthropic. The next phase of tech stock valuation will depend on Oracle Corporation's (ORCL:US) latest financial report on Wednesday.
Currency Market Volatility and Commodity Price Highs Retreat
Supported by potential Fed rate hike expectations, the U.S. dollar performed strongly against major currencies. The USD/JPY exchange rate remained near 160.17, just shy of the previous high of 160.725. As Japanese authorities may intervene in the forex market if the exchange rate breaks key levels, investor sentiment remains cautious. The EUR/USD stayed around 1.1538, near a nine-week low. In the commodity market, signs of partial reconciliation in geopolitical tensions led to a moderate retreat in oil prices from their highs, despite restrictions in the Strait of Hormuz not being fully lifted. Brent crude futures fell 0.7% to $93.57 per barrel, while WTI crude futures also dropped to $90.62 per barrel. Spot gold remained stable at $4,334 per ounce, having previously hit a two-month low. If core inflation data continues to rebound in the future, pricing models for commodities and major asset classes may face further reassessment.
