Most Asian stocks rise as US data ease rate fears

Asian equities experienced a surge on Monday, buoyed by a softer outlook for a potential US interest rate increase following recent economic data. In Tokyo, the Nikkei 225 index ended the day up 0.7% to 69,220.25 points, while Hong Kong's Hang Seng Index and Shanghai Composite index both rose by 1.3% and 1.4% respectively, closing at 25,453.23 points and 3,982.65 points.

This positive sentiment was fueled by hopes that the Federal Reserve would refrain from tightening monetary policy in the coming month, which had earlier lifted the S&P 500 and Nasdaq to record highs.

Traders appeared to adopt a "bad news is good news" mentality, interpreting the economic data as a sign of a weakening US economy. However, subsequent figures on Friday cast doubt on the robustness of the economy, raising concerns that investors should proceed with caution. Retail sales in the US contracted by 0.6% on a month-over-month basis in July, marking the most significant decline in over a year.

Consumer sentiment also took a hit, with households reducing spending due to the fallout from the Trump administration's Iran war and anticipating rising inflation.

The latest available data, including subdued retail sales and weaker consumer sentiment, suggested that US economic momentum may be slowing, increasing the likelihood that the Federal Reserve could keep rates unchanged in September. This shift in the probability of a rate hike has moved from 50:50 to 1 in 4, according to Bloomberg. Now, investors are actively monitoring the earnings reports from major retailers such as Walmart, Home Depot, and Target, which could provide further insight into consumer sentiment.

Despite the mixed signals, Asian investors maintained a more optimistic stance, with tech stocks leading the recovery from last month's sell-off. Hong Kong's Hang Seng Index was driven by the performance of tech giants Alibaba, Tencent, and JD.com, while Shanghai and Taipei also recorded gains. Tokyo's Nikkei 225 index saw a notable uptick as well, propelled by the sharp rise in chipmaker Kioxia, which surged more than 15%. Other companies, such as SoftBank, Advantest, and Tokyo Electron, also experienced moderate gains.

The positive sentiment in Asia was not limited to Japan, as Shanghai, Taipei, Singapore, and Bangkok joined in the rally, alongside London and Frankfurt. Conversely, Sydney, Wellington, Mumbai, and Manila experienced slight declines. The South Korean stock market, however, was closed for a holiday.

Oil prices experienced a slight downturn following their 1% gains on Friday, as tensions between the United States and Iran continued to escalate. Iran fired back at Trump's claim that he would soon declare the Strait of Hormuz a part of US territory, asserting that the strategic waterway would remain under Iranian control. The US, in turn, contended that Iran's blockade of the strait would persist.

Analysts warned that the ongoing crisis could persist, maintaining elevated oil prices and exerting pressure on inflation. The US strategy, focused on exerting economic pressure rather than military action, posed the risk of a prolonged standoff. Conversely, Iran aimed to capitalize on dwindling oil supplies, potentially driving up prices and prompting the United States to negotiate a deal.