Stocks muted, gold at new peak as markets weigh Fed cut timing

The financial markets showed a muted performance in Asia on Friday, with stocks trading sideways as investors weighed the timing of potential interest rate cuts from the Federal Reserve (Fed) against conflicting signals from recent inflation data.

The uncertainty surrounding the Fed's monetary policy stance stemmed from a mixed bag of inflation data released in the United States earlier this week. On the one hand, the producer price index (PPI), which measures the cost of goods at the wholesale level, came in lower than expected, with a 0.1% increase in May compared to market expectations of a 0.2% rise. This mild reading fueled hopes among investors that the Fed might consider cutting interest rates to help support economic growth, especially given the ongoing trade tensions between the United States and China.

However, these expectations were tempered by another key inflation indicator – the consumer price index (CPI) – which showed a larger-than-anticipated 0.3% increase in May. This unexpectedly strong CPI reading led to a sharp sell-off in U.S. Treasury bonds and a subsequent rise in yields, which in turn dampened investor enthusiasm for stocks and other riskier assets.

As a result of these conflicting signals, markets now anticipate fewer than two quarter-point reductions to the Fed funds rate this year, according to the CME Group's FedWatch tool. This is below the three rate cuts that Fed officials had previously signaled they might consider in 2019 to help mitigate the impact of trade tensions and slowing global growth.

Amid this uncertain environment, Asian stocks struggled to find direction, with Japan's Nikkei 225 index closing 0.1% lower, while South Korea's Kospi and Hong Kong's Hang Seng index both finished flat. Chinese stocks, as measured by the Shanghai Composite Index, managed to eke out a small gain of 0.1%.

Meanwhile, gold continued its upward trajectory, reaching a fresh all-time high of $1,436.50 per ounce, as investors sought refuge in the precious metal due to its perceived safe-haven status during times of economic uncertainty and potential monetary easing by major central banks.

Despite the subdued performance of Asian stocks, other asset classes such as bonds and currencies continued to reflect the ongoing market volatility. The yield on the benchmark 10-year U.S. Treasury note hovered around 2.06%, just below its five-month high of 2.13% reached earlier this week. The Japanese yen, another safe-haven currency, strengthened against its major peers, while the Australian and New Zealand dollars weakened against their U.S. counterpart due to concerns over their economies' vulnerability to slower global growth and trade tensions.

In summary, Asian stocks showed a lackluster performance on Friday as investors grappled with conflicting signals from recent U.S. inflation data and tried to decipher the implications for global monetary policy. Gold continued to rise, while bond yields and safe-haven currencies reflected ongoing market uncertainty.