By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
Signs of life being breathed back into China's economy and a strong rally on Wall Street on Friday bode well for Asian markets on Monday, although nervousness over the inauguration of President-elect Donald Trump could temper optimism.
US markets will be closed for Martin Luther King Jr. Day, so global liquidity will be lighter than usual, and US debt ceiling jitters are back in sharp focus. A further reason, perhaps, for investors in Asia to tread lightly.
Investors have broadly welcomed the 'market friendly' parts of Trump's expected agenda such as tax cuts and deregulation. But other parts, such as tariffs and mass deportations, could reignite inflation and slow the pace of Fed rate cuts.
Furthermore, higher rates for a longer period could damage growth and create concerns about 'stagflation', making the Fed's job even more difficult. His inaugural speech could be full of market-moving policy promises, directives and executive orders.
In that context, the saga surrounding TikTok is being watched closely for clues on Trump's policy-making and approach to China. His latest position is that he will revive the Chinese-owned social media app's access in the US by executive order after it is sworn in, but wants it to be at least half owned by US investors .
Back in the markets, the dollar and Treasury yields eased off Monday's historic highs and ended last week lower, providing a welcome easing of financial conditions for Asian and emerging markets. obvious.
The 10-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.
It seems that the catalyst was relatively tame US inflation data and tame comments from Fed Governor Christopher Waller, which prompted the idea of three or four quarter point rate cuts this year.
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%. However, Asian stocks underperformed – the MSCI Asia ex-Japan index rose 0.8%, Chinese stocks edged just 0.3%, while Japan's Nikkei 225 fell.
China's 'data dump' last week was more encouraging than analysts had expected. Overall growth in the fourth quarter was 5.4%, meaning that Beijing met its annual GDP growth target of around 5%.
The People's Bank of China sets interest rates on Monday. It is expected to ease policy slowly and carefully in the first quarter of this year, but not necessarily starting on Monday.