By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
Signs of life being breathed back into the Chinese economy and a strong rally on Wall Street on Friday bode well for Asian markets on Monday, although nervousness surrounding the inauguration of President-elect Donald Trump could dampen optimism.
The US markets will be closed due to Martin Luther King Jr. Day, meaning global liquidity will be lighter than normal, and US debt ceiling jitters are back in sharp focus. Perhaps a further reason for investors in Asia to tread lightly.
Investors have generally welcomed the “market-friendly” parts of Trump’s expected agenda, such as tax cuts and deregulation. But other components, such as tariffs and mass deportations, could reignite inflation and slow the pace of Fed rate cuts.
Moreover, higher interest rates could hurt growth and fuel concerns about “stagflation,” making the Fed’s job even harder. His inauguration speech could be laden with market-moving policy commitments, directives and executive orders.
In that context, the TikTok saga is being closely watched for clues about Trump’s policymaking and approach towards China. His latest stand is that after he is sworn in, he will revive the Chinese social media app’s entry into the US through an executive order, but he wants it to be at least half owned by US investors .
Back in the markets, dollar and government bond yields fell from Monday’s all-time highs to end 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 this week and the dollar index hit a 27-month high, recording only its second weekly loss in 16 weeks.
The catalyst appears to have been relatively tame US inflation data and dovish comments from Fed Governor Christopher Waller, who this year floated the idea of three or four quarter-point rate cuts.
The S&P 500 rose 3% last week – the best week in the 10 – the Nasdaq climbed 2.4% and MSCI World rose 1.7%. However, Asian shares underperformed: the MSCI Asia ex-Japan index rose 0.8%, Chinese shares rose only 0.3%, while Japan’s Nikkei 225 fell.
Last week’s Chinese data dump was more encouraging than analysts expected. Total growth in the fourth quarter was 5.4%, meaning Beijing achieved its annual GDP growth target of around 5%.
The People’s Bank of China will set interest rates on Monday. Policy is expected to be eased slowly and cautiously in the first quarter of this year, but not necessarily from Monday.