Author: Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
Signs of life returning to China’s economy and strong growth on Wall Street on Friday bode well for Asian markets on Monday, although jitters over President-elect Donald Trump’s inauguration could dampen optimism.
US markets will be closed for Martin Luther King Jr. Day, so global liquidity will be tighter than usual and the US debt ceiling jitters are back in focus. A further reason, perhaps, for investors in Asia to tread lightly.
Investors mostly welcomed the ‘market’ parts of Trump’s expected agenda such as tax cuts and deregulation. But other parts, such as tariffs and mass deportations, could reignite inflation and slow the pace of Fed rate cuts.
Furthermore, higher for longer rates could hurt growth and fuel concerns about ‘stagflation’, making the Fed’s job even harder. His inauguration speech could be packed with market-moving political promises, directives and executive orders.
In this context, the TikTok saga is being watched closely for clues about Trump’s policies and approach to China. His latest stance is that he will revive access to the Chinese-owned social media app in the US by executive order after he is sworn in, but wants it to be at least half-owned by American investors.
Back in the markets, yields on the dollar and government bonds edged off Monday’s all-time highs and ended last week lower, providing a welcome easing of financial conditions for Asian and emerging markets.
The 10-year yield hit a 16-month high of 4.80%, but fell 17 basis points on the week to hit a 27-month high for only its second weekly loss in 16 weeks.
The catalyst appears to have been relatively tame US inflation data and cheeky remarks from Fed Governor Christopher Waller, who floated the idea of three or four quarter-point rate cuts this year.
It rose 3% last week – its best week in 10 – while the Nasdaq climbed 2.4% and rose 1.7%. Asian shares were weaker, however – the index rose 0.8%, Chinese shares rose only 0.3%, while 225 fell.
Last week’s ‘data dump’ in China was more encouraging than analysts expected. Overall growth in the fourth quarter was 5.4%, meaning Beijing met its annual GDP growth target of around 5%.
The People’s Bank of China sets interest rates on Monday. It is expected to ease policy slowly and cautiously in the first quarter of this year, but may not necessarily start on Monday.
Meanwhile, investors in Japan are bracing for a possible interest rate hike by the Bank of Japan on Friday. The latest signals from BOJ officials point firmly in that direction, and markets have reacted accordingly – the yen strengthened and Japanese stocks fell.
Here are the key developments that could provide more direction to markets on Monday:
– Decision on the interest rate in China
– Japanese machine orders (November)
– Malaysia trade (December)
