Most Asian stock markets were set to advance Friday on fresh signs of slowing US inflation that sent bond yields tumbling and sparked a rotation out of big tech stocks on Wall Street.

Equity futures for Australia and Hong Kong rose, while contracts for Japan fell 1.7% after the yen’s rapid appreciation against the dollar prompted reports that authorities had stepped in to support the currency. The moves followed data showing US core consumer prices that exclude energy and food rose at the slowest pace since 2021, bolstering the case for Federal Reserve rate cuts.

Optimism over lower rates sparked a shift into riskier corners of the US market - as money exited the long-favored safety trade of big tech. 

The S&P 500 fell 0.9% Thursday, even as around four-fifths of its constituents advanced. The Nasdaq 100 dropped 2.2%, weighed down by some of the year’s big winners including Nvidia Corp, which slumped 5.6%. Tesla Inc. plunged 8.4% on news it’s postponing its planned robotaxi unveiling to October.

“The big tech trade is turning on itself, yet the rest of the market is finally stepping in,” said Callie Cox at Ritholtz Wealth Management. While the S&P 500 is down, “this is the best kind of selloff you could hope for if you’re a long-term investor.”

Small-cap stocks were among the day’s primary beneficiaries. The Russell 2000 of smaller firms beat the Nasdaq 100 by 5.8 percentage points - the most since November 2020.

The prospect of lower US interest rates sent 10-year Treasury yields seven basis points lower to 4.21% and a gauge of the dollar fell by the largest margin since May. Australian and New Zealand government bonds opened higher Friday.

Fed Bank of Chicago President Austan Goolsbee described the data as “excellent,” adding the figures provided the evidence he’s been waiting for to be confident the central bank is on a path to its 2% goal. 

To Chris Larkin at E*Trade from Morgan Stanley, July is still a longshot, but Thursday’s “Fed-friendly CPI” got markets one step closer to a September rate cut. A lingering question is whether this high-flying stock market has already priced in multiple cuts, he noted.

Neuberger Berman Group’s Steve Eisman expects the outsized strength in US megacap technology shares will “last for years,” as artificial intelligence becomes more accessible to consumers via electronic devices.

“You have to own the big, large-cap tech stocks,” he told Bloomberg Television in an interview on Thursday. Eisman’s words attract notice on Wall Street because he made a name for himself with his “Big Short” bet against subprime mortgages ahead of the global financial crisis.

In Asia, economic reports due Friday include Singapore gross domestic product, Japan industrial output and Indian inflation. China money supply and new loans data may also be released as soon as today.

  - Bloomberg