(Bloomberg) — Asian stocks are poised for a cautiously positive start to holiday trading after the Federal Reserve’s favorite inflation gauge came in below expectations on Friday and a U.S. government shutdown was averted over the weekend.
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Stock futures in Australia, Japan and Hong Kong pointed to gains early on Monday, while those in mainland China eased. The S&P 500 Index rebounded 1.1% on Friday, its biggest gain since Nov. 6, while U.S. consumer spending rose at the slowest pace since May.
Early gains could offer some reprieve to global markets after stocks suffered their worst weekly decline in four months after a stream of robust US economic data caused the Fed to scale back the number of cuts it expects by 2025. While Chairman Jerome Powell focused on inflation progress, Friday’s subdued data likely reassured policymakers – and investors – that the economy is cooling, despite being robust.
“Lower-than-expected U.S. core PCE inflation data for November suggests the Fed may have become too negative on inflation,” Shane Oliver, head of investment strategy and chief economist at AMP Ltd., wrote in a note to clients. “Our overall assessment remains that the trend in equities is still upward, including for Australian equities, but we expect much more volatile and limited momentum in the coming year.”
Australian 10-year yields fell six basis points in early trade after a rally in US government bonds following Friday’s PCE data.
The dollar held steady against major peers after President Joe Biden signed funding legislation to keep the U.S. government operational until mid-March, avoiding a year-end shutdown and pushing future spending decisions into Donald Trump’s presidency.
Sentiment could turn quickly as investors look ahead to Trump’s inauguration in January and the prospect of sweeping global tariffs, which will worsen an already torrid time in emerging Asia as sentiment toward Chinese assets wanes.
Asian shares are set for their first quarterly loss since September 2023, while a gauge of the region’s currencies fell to the lowest level in more than two years last week. China’s one-year government bond yields fell below levels last seen during the global financial crisis on Friday as traders stepped up bets on monetary easing.
“The recent weakening of the Asian currency, in our view, is largely driven by dollar support, the Chinese government’s significant shift toward moderately accommodative monetary policy” and a deterioration in macro growth prospects, especially in South Korea. , said Wee Khoon Chong, senior market strategist for Asia Pacific at BNY in Singapore. “Asian currencies are cheap, but be careful to catch the falling knife.”