After U.S. inflation data came in above expectations, Federal Reserve Chair Kevin Warsh offered no clear signal of further monetary tightening during remarks at an International Monetary Fund event in Bangkok. Bets on another Fed rate hike this month cooled sharply, with traders cutting the odds from more than 25% to about 15%. The shift quickly spilled over into currency and equity markets, as global risk assets broadly rose on Friday and the dollar eased slightly.
Asian markets rebounded strongly, with major indexes up 1.6%. South Korea's Kospi rose 4% on strength in chip stocks, with Samsung Electronics and SK Hynix shares both climbing more than 4%, after the benchmark had fallen to its lowest level since April in the previous session. U.S. stock index futures also shed early selling pressure, turning from a 0.6% decline to a 0.2% gain. Easing selling in the semiconductor sector, along with Warsh's comments that artificial intelligence would deliver a positive supply-side shock to the U.S. economy over the medium term, helped repair market sentiment.
Not all markets warmed in tandem. Indonesia's stock market at one point fell 11%, marking its biggest one-day decline since January 1998, while the rupiah also slipped slightly. The move came after an agency concluded that Indonesia no longer met the criteria for emerging-market classification, prompting investors to reassess local assets. The dollar index eased just 0.1%, after posting its largest one-day drop in more than a month in the previous session. Gold rose a modest 0.1% to about $4,175 per ounce, while U.S. Treasury prices continued to fall during Warsh's remarks, after an earlier intraday rebound.
Corporate earnings reports will begin arriving next week, and investors will watch whether capital can rotate from previously crowded tech and chip trades into a broader set of sectors. With Warsh offering no forward guidance, traders will continue to make frequent adjustments to their rate-path outlook in response to changes in inflation, oil prices and corporate earnings.
