By Jamie McGeever
(Reuters) – A have a look at the day ahead in Asian markets.
Signs of life being breathed back into China’s economy and a powerful rally on Wall Street on Friday bode well for Asian markets on Monday, although nervousness around President-elect Donald Trump’s inauguration could temper the optimism.
U.S. markets can be closed for Martin Luther King Jr. Day, so global liquidity can be lighter than usual, and U.S. debt ceiling jitters are back in sharp focus. Further reason, perhaps, for investors in Asia to tread flippantly.
Investors have broadly welcomed the ‘market-friendly’ parts of Trump’s expected agenda like tax cuts and deregulation. But other parts, like tariffs and mass deportations, could rekindle inflation and slow the pace of Fed rate cuts.
Moreover, higher-for-longer rates could damage growth and stoke ‘stagflation’ concerns, making the Fed’s job even tougher. His inauguration speech might be laden with market-moving policy pledges, directives and executive orders.
In that context, the saga surrounding TikTok is being closely watched for clues on Trump’s policymaking and approach to China. His latest position is he’ll revive the China-owned social media app’s access within the U.S. by executive order after he’s sworn in, but wants it to be no less than half owned by U.S. investors.
Back within the markets, the dollar and Treasury yields eased off Monday’s historic highs and ended last week lower, providing a welcome easing of monetary conditions for Asian and emerging markets.
The ten-year yield clocked 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 register only its second weekly loss in 16 weeks.
The catalyst seems to have been relatively tame U.S. inflation data and dovish remarks from Fed Governor Christopher Waller, who floated the concept of three or 4 quarter-point rate cuts this yr.
The S&P 500 rose 3% last week – its best week in 10 – the Nasdaq climbed 2.4% and the MSCI World rose 1.7%. Asian stocks underperformed though – the MSCI Asia ex-Japan index rose 0.8%, Chinese stocks edged up only 0.3%, while Japan’s Nikkei 225 fell.
China’s ‘data dump’ last week was more encouraging than analysts had expected. Overall growth within the fourth quarter was 5.4%, meaning Beijing met its annual GDP growth goal of around 5%.
The People’s Bank of China sets rates of interest on Monday. It is anticipated to ease policy slowly and cautiously in the primary quarter of this yr, but not necessarily starting on Monday.