Jamie McGeever takes a look at what’s on the horizon for Asian markets, and there’s plenty to consider. Momentum seems to be building in China’s economy, and a robust rally on Wall Street last Friday could set a positive tone for Asian markets on Monday. However, any excitement might be tempered by the looming apprehension surrounding President-elect Donald Trump’s upcoming inauguration.
With U.S. markets closed for Martin Luther King Jr. Day, we’re expecting less global liquidity. Meanwhile, concerns over the U.S. debt ceiling have resurfaced, so it might be wise for investors in Asia to approach the week cautiously.
Trump’s anticipated agenda on tax cuts and deregulation has generally been well-received by investors, but there’s a fair amount of anxiety. Elements like proposed tariffs and mass deportations could stir up inflation and slow down rate cuts from the Federal Reserve.
The outlook isn’t entirely rosy, as there’s talk that prolonged high interest rates might hamper economic growth and raise fears of stagflation, complicating the Fed’s task. Trump’s inauguration speech could be packed with market-moving pledges and orders, potentially shaking things up.
Another important saga to follow is the TikTok issue, as it might shed light on Trump’s policy-making approach, especially towards China. His latest stance suggests he’ll allow the Chinese-owned app to resume U.S. operations by executive order after assuming office, but he wants U.S. investors to own at least half of it.
Turning back to market trends, both the dollar and Treasury yields dipped from Monday’s record highs and ended last week with losses. This shift has alleviated some financial pressure on Asian and emerging markets.
The 10-year yield, after touching a significant high of 4.80%, stepped back by 17 basis points over the week. While the dollar index soared to a 27-month peak, it recorded only its second weekly slide in 16 weeks.
A contributing factor seems to be controlled U.S. inflation figures, along with dovish remarks from Fed Governor Christopher Waller, who suggested the possibility of multiple quarter-point rate cuts this year.
U.S. markets had a strong showing, with the S&P 500 climbing 3%—its best performance in ten weeks. The Nasdaq gained 2.4%, and the MSCI World index was up 1.7%, although Asian stocks lagged behind. The MSCI Asia ex-Japan index rose 0.8%, Chinese markets inched up only 0.3%, while Japan’s Nikkei 225 took a dip.
In China, last week’s data was more positive than anticipated. The fourth-quarter growth hit 5.4%, helping Beijing achieve its annual GDP target of about 5%.
On Monday, all eyes will be on the People’s Bank of China as they decide on interest rates. Expectations point to gradual and cautious easing during the first quarter of this year, but immediate action isn’t necessarily expected.
In Japan, investors are preparing for a potential rate hike from the Bank of Japan on Friday. Strong signals from BOJ officials suggest we might see this shift, with the yen rallying and Japanese stocks taking a hit in response.
To wrap things up, here are a few key events to watch on Monday that could influence market movements:
– China’s interest rate decision
– November’s machinery orders from Japan
– December trade figures from Malaysia
(Reporting by Jamie McGeever; Editing by Diane Craft)
