Asian Markets Poised for Gains Amid China’s Economic Revival
As the world gears up for a new week, Asian markets are bracing for a potential surge, fueled by signs of life in China’s economy and a strong rally on Wall Street. However, the impending inauguration of President-elect Donald Trump and the subsequent uncertainty surrounding his policies may temper the optimism.
Global Liquidity Takes a Hit
With U.S. markets closed for Martin Luther King Jr. Day, global liquidity will be lighter than usual, making investors in Asia more cautious. The ongoing debate over the U.S. debt ceiling is also back in the spotlight, adding to the nervousness.
Trump’s Agenda: A Mixed Bag
While investors have welcomed Trump’s ‘arket-friendly’ policies, such as tax cuts and deregulation, other aspects of his agenda, like tariffs and mass deportations, could spark inflation and slow down the pace of Fed rate cuts. This, in turn, could damage growth and stoke ‘tagflation’ concerns, making the Fed’s job even more challenging.
TikTok Saga: A Glimpse into Trump’s Policymaking
The controversy surrounding TikTok is being closely watched for clues on Trump’s approach to China. His latest stance is to revive the app’s access in the U.S. by executive order, but with a twist – he wants it to be at least half-owned by U.S. investors.
Dollar and Treasury Yields Ease Off
The dollar and Treasury yields retreated from their historic highs last week, providing a welcome respite for Asian and emerging markets. The 10-year yield clocked a 16-month high of 4.80% before falling 17 basis points, while the dollar index hit a 27-month high, registering only its second weekly loss in 16 weeks.
U.S. Inflation Data and Dovish Fed Remarks
The catalyst behind the easing of financial conditions was relatively tame U.S. inflation data and dovish remarks from Fed Governor Christopher Waller, who suggested three or four quarter-point rate cuts this year.
Global Markets: A Mixed Bag
The S&P 500 rose 3% last week, its best week in 10, while the Nasdaq climbed 2.4% and the MSCI World rose 1.7%. However, Asian stocks underperformed, with the MSCI Asia ex-Japan index rising 0.8%, Chinese stocks edging up only 0.3%, and Japan’s Nikkei 225 falling.
China’s Economic Revival
China’s ‘data dump’ last week was more encouraging than analysts had expected. Overall growth in the fourth quarter was 5.4%, meaning Beijing met its annual GDP growth goal of around 5%. The People’s Bank of China is expected to ease policy slowly and cautiously in the first quarter of this year.
Japan’s Rate Hike Expectations
Investors in Japan are bracing for a possible rate hike from the Bank of Japan on Friday, with the latest signals from BOJ officials pointing firmly in that direction. The yen has rallied, and Japanese stocks have fallen in response.
Key Developments to Watch
- China interest rate decision
- Japan machinery orders (November)
- Malaysia trade (December)
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