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

The global financial markets displayed a muted performance on Friday, with Asian equities showing little movement as investors deliberated over the potential timing of further interest rate cuts from the Federal Reserve (Fed). The uncertainty surrounding the U.S. inflation outlook continued to dominate market sentiment, with recent data releases providing conflicting signals.

On one hand, producer price inflation in the United States came in milder than expected for May, with the Producer Price Index (PPI) increasing by 0.1% month-on-month, below market forecasts of a 0.2% rise. This data point added to the case for lower interest rates, as it suggested that inflationary pressures may not be as strong as previously anticipated.

However, this optimistic view was tempered by the release of hotter-than-expected Consumer Price Index (CPI) data earlier in the week, which showed a 0.3% monthly increase in consumer prices and a yearly gain of 2.0%. This unexpectedly high inflation reading led to a significant reduction in market expectations for the number of interest rate cuts the Fed would implement this year.

According to the CME Group's FedWatch Tool, which tracks market expectations for Fed policy moves, the probability of three quarter-point reductions to the Fed funds rate this year has dropped significantly. As of now, markets anticipate fewer than two such cuts, reflecting the uncertainty surrounding the inflation outlook and the potential impact of ongoing trade tensions.

Amid this market volatility, gold prices continued to climb to new all-time highs, with the precious metal reaching $1,435.50 per ounce during intraday trading. The yellow metal's safe-haven appeal was bolstered by the uncertainty surrounding global economic conditions and the potential for further monetary easing from major central banks, including the Fed.

Meanwhile, U.S. Treasury yields remained close to their five-month highs, with the benchmark 10-year yield hovering around 2.07%. This yield level reflects the ongoing debate among market participants regarding the future direction of both inflation and interest rates.

In summary, Asian equities displayed a subdued performance on Friday as investors weighed the implications of recent inflation data and the evolving outlook for Fed policy moves. Gold prices continued to rise to new all-time highs, while U.S. Treasury yields remained relatively stable near their recent highs. The market uncertainty is expected to persist in the coming days, with key economic data releases and central bank announcements likely to influence market sentiment.