Asian equity markets rose to record highs on Wednesday, buoyed by growing expectations of interest rate cuts from the Federal Reserve following weaker-than-expected US retail sales data. The MSCI Asia Pacific Index climbed 0.9% to an all-time high, extending its year-to-date outperformance against European and US equities. Emerging market equities also reached a record peak, with futures contracts for the S&P 500 and Nasdaq 100 indexes signaling a positive open for Wall Street.
The rally was fueled by Tuesday’s report showing no growth in US retail sales in December, following a 0.6% increase in November. This data has reinforced the view that the Federal Reserve may begin easing monetary policy later this year, providing a boost to risk assets. Traders are now pricing in a higher probability of three rate cuts in 2026, with two already factored into market expectations, according to Bloomberg.
Treasury futures extended gains, with 10-year bond yields falling to a one-month low during the US session. Trading in Treasuries was limited in Asia due to a holiday in Japan. Gold, traditionally a beneficiary of lower interest rates, rose 0.6% to $5,058.11 an ounce. The US dollar weakened against all Group-of-10 currencies, reflecting the diminished appeal of dollar-denominated assets in a lower-rate environment.
The focus now shifts to the upcoming US jobs report and inflation data, scheduled for release later this week. These figures will provide further clues about the Federal Reserve’s policy path. While the weaker retail sales data has increased the likelihood of rate cuts, analysts caution that a strong jobs report could temper those expectations. “A weak print could push sentiment further toward risk-off if growth worries start to build, but a solid print may ease some of those concerns,” said Bret Kenwell at eToro.
Economists predict a 65,000 increase in January payrolls, which would represent the best reading in four months. The unemployment rate is expected to remain steady at 4.4%. Importantly, the jobs report will include an annual revision to the payroll count, potentially revealing a downward adjustment to previous figures for the year through March 2025.
Despite the positive market reaction to the retail sales data, concerns remain about the health of the US economy. The tepid consumer spending figures suggest a potential slowdown in economic growth, even as the labor market remains relatively strong. This divergence is creating uncertainty among investors and policymakers.
The strength in Asian markets also reflects broader regional trends. Several factors are contributing to the outperformance of Asian equities, including robust economic growth, resilient currencies, and strong demand for credit. The region is also benefiting from the global surge in investment related to artificial intelligence.
However, the rapid expansion of AI investment is also creating anxieties on Wall Street. Concerns about inflated valuations and the potential for disruption are weighing on technology stocks. A recent incident involving Altruist Corp., a little-known startup, highlighted the risks associated with new technologies, sending shares of established financial firms like Charles Schwab, Raymond James, and LPL Financial down sharply.
Goldman Sachs CEO David Solomon acknowledged the volatility surrounding AI, stating, “I think the narrative over the last week has been a little bit too broad. There’ll be winners and losers — plenty of companies will pivot and do just fine.” This suggests that while the AI revolution presents challenges, it also creates opportunities for companies that can adapt and innovate.
Several corporate developments further underscored the shifting economic landscape. Alphabet Inc. Raised almost $32 billion in debt to fund its AI initiatives, demonstrating the enormous capital requirements of tech giants competing in this space. Activist investor Ancora Holdings Group has taken a position in Warner Bros. Discovery Inc., signaling potential changes at the media conglomerate. Ford Motor Co. Anticipates a significant profit increase in 2026, despite facing a recent tariff bill. Commonwealth Bank of Australia saw its shares climb to a five-year high after reporting strong first-half profits, driven by growth in its mortgage business.
As of 12:50 p.m. Tokyo time on Wednesday, S&P 500 futures were up 0.3%. Australia’s S&P/ASX 200 rose 1.5%, Hong Kong’s Hang Seng gained 0.4%, and the Shanghai Composite increased 0.2%. Euro Stoxx 50 futures were relatively unchanged. The Bloomberg Dollar Spot Index fell 0.2%, marking its fourth consecutive day of decline. Bitcoin traded below $69,000, while Ether rose 0.3% to $2,014.57. West Texas Intermediate crude oil rose 0.8% to $64.49 a barrel.
