The gains across both Japanese and Korean equities reflect a broadly risk-on tone heading into what is genuinely one of the more consequential 24 hour stretches for global markets this quarter, spanning Nvidia’s results, the US PCE print, and Fed Chair Warsh’s Jackson Hole speech on Friday. A soft PCE reading is being framed as the most supportive outcome for equities generally, since it would reduce the odds of a Fed rate rise and lower the discount rate applied to growth and technology stocks. Japan and Korea’s advances, led respectively by broad market strength and by chipmakers specifically, suggest investors are positioning for a favourable outcome from Nvidia rather than hedging against disappointment, though the divergence between Korea’s rising share prices and net foreign selling is worth watching if that optimism doesn’t carry through the print.
—
Asian markets are betting the AI trade and the Fed both deliver good news within hours of each other.
Summary:
- Japan’s Nikkei 225 rose around 0.6% to just above 66,200 by the midday break, reversing an early decline
- The broader Topix index gained a similar amount, also around 0.6%
- Wall Street’s main indexes closed higher overnight, with markets positioning ahead of Nvidia’s results due after Wednesday’s US market close
- Traders are watching the Fed’s preferred inflation measure, the US PCE price index for July, due later on Wednesday
- The release follows an unexpected decline in US nonfarm payrolls and an in-line consumer inflation print earlier this month, both of which had already tempered expectations for a September Fed rate rise
- A soft PCE reading is expected to further reduce rate rise expectations, seen by some analysts as a positive catalyst for equity markets
- South Korea’s KOSPI also edged higher, up around 0.4%, with chipmakers Samsung Electronics and SK Hynix among the gainers on optimism ahead of Nvidia’s results
- The Korean won strengthened and the benchmark bond yield fell, though foreign investors were net sellers of Korean shares
- Automaker Kia reached a tentative wage agreement with its labour union, averting planned strikes at its domestic plants
- The KOSPI has gained more than 60% so far this year, while the won has strengthened by more than 4% against the dollar over the same period
Asian shares edged higher on Wednesday, with both Japanese and South Korean markets advancing ahead of two major catalysts due later in the global trading day, Nvidia’s earnings report and the US Personal Consumption Expenditures price index for July.
In Japan, the benchmark Nikkei 225 rose around 0.6% to just above 66,200 by the midday break, reversing an early slide, while the broader Topix index gained a similar amount. The advance came after Wall Street’s main indexes closed higher overnight, with US markets positioning ahead of Nvidia’s results, due after the bell on Wednesday and closely watched for signs of continued growth in the artificial intelligence sector that has powered much of the recent rally in global equities.
Traders in Tokyo were also focused on the Fed’s preferred inflation gauge, the US PCE price index for July, due later on Wednesday. The release follows an unexpected decline in US nonfarm payrolls and a consumer inflation print that came in broadly in line with forecasts earlier this month, both of which had already tempered expectations for a Federal Reserve rate increase in September. Analysts noted that a soft PCE reading would likely see expectations of a Fed rate rise recede further, a scenario some market participants view as positive for equities given the reduced pressure on valuations that follows lower rate expectations.
South Korea’s KOSPI index also advanced, up around 0.4% to roughly 6,770 points, with the move led by chipmakers Samsung Electronics and SK Hynix, both of which gained on similar optimism ahead of Nvidia’s results given their central role in supplying components to the broader AI supply chain. Battery maker LG Energy Solution moved against the trend, slipping slightly. The Korean won strengthened against the US dollar and the country’s benchmark bond yield fell, though foreign investors were net sellers of Korean shares on the day, offloading a little over 500 billion won worth of stock.
In a separate development in Korea, automaker Kia Corp and its domestic labour union reached a tentative wage agreement, averting planned partial strikes that had been scheduled to begin later on Wednesday, a resolution that removes a near term risk to the company’s domestic production.
The gains in both markets extend a strong run for regional equities this year. The KOSPI has now risen more than 60% year to date, a performance closely tied to the broader global AI investment cycle given Korea’s position as a key supplier of memory chips and semiconductor components. The won has strengthened by more than 4% against the dollar over the same period. With both Nvidia’s results and the US inflation data due within hours of each other, the direction of Asian markets in the sessions ahead is likely to hinge heavily on how those two catalysts land, and on Fed Chair Kevin Warsh’s keynote address at the Jackson Hole symposium still to come on Friday.
This article was written by Eamonn Sheridan at investinglive.com.