The Asian markets are showing promising signs of growth on Monday, fueled by positive economic indicators from China and a strong rally on Wall Street last Friday. However, the upcoming inauguration of President-elect Donald Trump and lingering uncertainty surrounding his policies may temper this optimism.
With US markets closed for Martin Luther King Jr. Day, global liquidity will be thinner than usual. This, coupled with renewed concerns about the US debt ceiling, could lead to cautious trading in Asia. Investors have generally welcomed Trump’s pro-business proposals, such as tax cuts and deregulation. However, concerns remain about potential protectionist measures like tariffs and immigration policies that could trigger inflation and potentially slow down the pace of Federal Reserve rate cuts.
Sustained higher interest rates could hinder economic growth and raise concerns about stagflation, making the Fed’s task even more challenging. Trump’s inauguration speech is anticipated to include significant policy announcements and executive orders that could have a substantial impact on the markets. The ongoing situation with TikTok serves as a key indicator of Trump’s policy approach towards China. His recent statement suggests he might reinstate the Chinese social media app’s access in the US via executive order, contingent on US investors acquiring at least half ownership.
Financial conditions in Asian and emerging markets eased last week as the dollar and Treasury yields retreated from recent highs. The 10-year Treasury yield, after reaching a 16-month peak of 4.80%, declined by 17 basis points. The dollar index, despite hitting a 27-month high, recorded only its second weekly loss in 16 weeks. This shift appears to be driven by moderate US inflation data and dovish comments from Fed Governor Christopher Waller, who suggested the possibility of three or four quarter-point rate cuts this year.
The S&P 500 experienced its best week in 10, surging by 3%, while the Nasdaq gained 2.4% and the MSCI World index rose 1.7%. However, Asian stocks lagged behind, with the MSCI Asia ex-Japan index rising 0.8%, Chinese stocks inching up 0.3%, and Japan’s Nikkei 225 declining.
Recent economic data released by China exceeded analysts’ expectations. Fourth-quarter growth reached 5.4%, enabling Beijing to achieve its annual GDP growth target of approximately 5%. The People’s Bank of China is scheduled to announce its interest rate decision on Monday. While a cautious easing of monetary policy is anticipated in the first quarter, it might not necessarily commence on Monday.
Meanwhile, market participants in Japan are anticipating a potential interest rate hike by the Bank of Japan on Friday. Recent statements from BOJ officials strongly suggest this possibility, leading to a yen rally and a decline in Japanese stocks.
Several crucial developments could influence market direction on Monday, including China’s interest rate decision, Japan’s machinery orders for November, and Malaysia’s trade data for December. These events will provide further insights into the economic landscape and potentially shape investor sentiment in the coming days.
