Hang Seng Index Rallies as Markets Recover Amid Rising Treasury Yields

Equities experienced a notable rebound on Friday, recovering from a previous sell-off that was largely influenced by rising US Treasury yields. This positive shift in the market was aided by a slight pullback in yields and growing optimism following the House’s approval of President Donald Trump’s ambitious tax-cutting budget. Despite earlier concerns stemming from Moody’s downgrade of the US credit rating, investor sentiment improved as the week progressed.

Market Recovery Amid Economic Concerns

The stock market’s recovery on Friday came after a week of heightened anxiety among investors. Earlier in the week, Moody’s decision to strip the US of its top-tier credit rating raised alarms about the nation’s soaring deficits. This anxiety was compounded by a disappointing 20-year Treasury auction, which unsettled investors already grappling with the implications of Trump’s recent tariff measures. However, the mood shifted positively after the Republican-controlled House narrowly passed the “One Big, Beautiful Bill Act.” This legislation aims to extend Trump’s 2017 tax cuts for another decade, although it does so by cutting social programs to offset the costs. The bill is now set to move to the Senate, where fiscal conservatives are expressing concerns about its potential to widen the deficit by up to $4 trillion over the next ten years.

The White House maintains that the proposed legislation will spur economic growth, projecting an increase of 5.2%. Officials argue that this growth would mitigate the bill’s impact on the national debt, which currently stands at $36 trillion. However, these projections have drawn skepticism from many economists, who question their feasibility.

Investor Sentiment Stabilizes

Investor sentiment showed signs of stabilization as Treasury yields eased, bolstered by stronger-than-expected data on jobs, housing, and factory output. This positive economic data helped to calm market nerves and contributed to modest gains across various Asian markets, including Tokyo, Hong Kong, and Sydney. However, some markets, such as Shanghai and Singapore, lagged behind. Wall Street’s mixed performance also played a role in shaping the overall market sentiment.

Adding to the optimism, Federal Reserve Governor Christopher Waller suggested that interest rate cuts could be on the horizon if Trump’s tariffs are reduced to 10% by July. Waller’s comments, made during an interview with Fox Business, indicated that a reduction in tariffs could create a favorable environment for economic growth in the latter half of the year.

Currency and Commodity Movements

In the currency markets, the US dollar weakened against the Japanese yen following a surprising rise in Japanese inflation, driven primarily by soaring food prices, particularly rice. This inflationary pressure may influence the Bank of Japan’s upcoming policy decisions, especially after recent rate hikes. The dollar’s decline against the yen was notable, dropping from 143.99 to 143.34.

Meanwhile, the commodities market saw a slight downturn, with WTI crude oil prices falling by 1.0% to $60.62 per barrel and Brent crude down by 0.9% to $63.89 per barrel. These fluctuations in oil prices reflect ongoing adjustments in response to global economic conditions.

Cryptocurrency Gains Momentum

In the cryptocurrency sector, Bitcoin continued its impressive ascent, reaching a new record of $111,980.33. This surge is attributed to growing optimism regarding upcoming regulations on stable coins, which many investors believe could lead to greater regulatory clarity in the market. The rise of Bitcoin reflects a broader trend of increasing interest in cryptocurrencies as they gain acceptance among mainstream investors and institutions.

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