Tech Momentum Boosts Asian Markets Amid Fed Watch and Geopolitical Tensions

The performance of Asia's technology stocks may be influenced by recent earnings reports from Microsoft Corp. and Google’s parent Alphabet Inc., which highlighted the profitability of investments in artificial intelligence and cloud computing.

Asian markets are poised for a mostly positive start, with a particular focus on technology firms, following a surge in US markets after a favorable inflation report eased worries about a more aggressive Federal Reserve stance. Equity futures in Australia, South Korea, and China indicate early gains, while those in Hong Kong have slipped. US futures edged up after the S&P 500 climbed 1% on Friday. Japan's markets are closed for a holiday, with attention on efforts to bolster the yen, which is at its weakest in over three decades. Australian bond yields declined, tracking US Treasuries from Friday.

The performance of Asia's technology stocks may be influenced by recent earnings reports from Microsoft Corp. and Google’s parent Alphabet Inc., which highlighted the profitability of investments in artificial intelligence and cloud computing. The rally in tech shares has helped mitigate the global stock decline this month to 2.7%, the first monthly loss since October, amid concerns about persistent inflation pressures and conflicts in the Middle East.

While there's a possibility that the market correction has concluded, Shane Oliver, chief economist and head of investment strategy at AMP Ltd., suggests caution, noting the risk of a mere rebound from oversold conditions. However, he believes any further downturn is unlikely to be severe, anticipating more gains in stocks as inflation eases, central banks cut interest rates, and recession risks remain low.

Traders will closely monitor the Federal Reserve’s upcoming policy meeting, particularly after the central bank's preferred inflation gauge accelerated in March, albeit in line with expectations. With rates expected to remain unchanged at a two-decade high, attention will be on any shifts in the post-meeting statement and Chair Jerome Powell’s press conference.

Given the recent acceleration in US consumer prices, Societe Generale economists anticipate a significant retreat from the Fed's earlier predictions of substantial policy easing this year. However, they believe the market impact will be limited unless Chair Powell hints at rate hikes, as rate cut expectations have already been significantly reduced.

US Treasury returns have declined sharply this month, recording the largest monthly drop since February last year, as hawkish Fed comments and robust economic data dampened rate cut prospects. Traders now anticipate only one Fed rate cut for 2024, a substantial decrease from earlier expectations.

Oil prices slipped and gold edged lower in early Asian trading as US Secretary of State Antony Blinken seeks to broker a truce in Gaza during meetings in the Middle East on Monday.

Looking ahead, European inflation data and earnings reports from Amazon.com Inc. and Apple Inc. will be in focus this week. Additionally, the US Treasury plans to maintain its issuance of long-term debt at a steady pace in its upcoming auction.