The caution of the formation slows down the awakening of danger
by Jamie MacGyver
(Reuters) – A look at the day ahead in Asian markets.
Signs of renewed life in China’s economy and a strong rally on Wall Street on Friday bode well for Asian markets on Monday, although fears over the inauguration of President-elect Donald Trump may dampen optimism.
U.S. markets will be closed for Martin Luther King Jr. Day, so global monetary policy will be easier than usual, and the U.S. debt ceiling crunch is back in focus. Another reason, perhaps, for investors in Asia to tread lightly.
Investors welcomed Trump’s expected ‘market-friendly’ elements such as tax cuts and deregulation. But other components, such as tariffs and mass retrenchment, could reignite inflation and slow the pace of the Fed’s rate cuts.
Moreover, higher long-term rates could hurt growth and stoke risks of ‘stagflation’, making the Fed’s job more difficult. The inaugural speech may be filled with market-oriented policies, directives, and executive orders.
In that context, the buzz around Tik Tok is being watched closely for clues about Trump’s policy-making and approach to China. His latest stance is that the Chinese-owned social media app will restore its presence in the US after being sworn in, but wants it to remain at least half-owned by US investors.
Returning to the markets, the dollar and Treasury yields pared Monday’s historic highs and ended last week’s lows, providing a welcome boost to financial conditions in Asia and emerging markets.
The 10-year yield hit a 16-month high of 4.80% but fell 17 basis points on the week and the dollar index hit a 27-month high to record only its second weekly loss in 16 weeks.
Comments from Fed Governor Christopher Waller, who has raised encouraging US inflation data and the idea of a three- or four-quarter-point cut this year, appeared relatively subdued.
The S&P 500 rose 3 percent last week — its best week in 10 — while the Nasdaq rose 2.4 percent and the MSCI World rose 1.7 percent. Asian stocks underperformed – the MSCI Asia ex-Japan index rose 0.8%, Chinese stocks rose only 0.3%, while Japan’s Nikkei 225 fell.
China’s ‘data dump’ last week was more encouraging than analysts expected. Overall growth in the fourth quarter was 5.4%, meaning Beijing achieved annual GDP growth of around 5%.
The People’s Bank of China will release interest rates on Monday. It is expected to ease policy slowly and cautiously in the first quarter of this year, but it will not necessarily start on Monday.
