Asian stocks stumbled at the start of the trading session after Christmas, while the dollar hovered around near a five-month low amid a cooling inflation and increasing expectations of interest rates cut.
The economic data released on Friday came as a surprise for the investors, showing a slump in US prices for the first time in more than 3-½ years, highlighting the economy’s resilience.
MSCI index (.MIAPJ0000PUS), the broadest Asia-Pacific index of shares outside Japan remained 0.18% higher, signifying a gain of 1.6% this year. Although Japan’s Nikkei (.N225) traded on thin lines, going up by 0.16%, it remains the best performing Asian market this year with a cumulative gain of 27%.
Trading is likely to remain slim and scattered on the day after Christmas with various markets, including those in New Zealand, Hong Kong and Australia closed for the Boxing Day Holiday, while others having an additional day of Christmas season.
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Investors Expectations
Asian stocks investors are feeling quite motivated by recent signs from the Fed on the interest rates forecast. At the conclusion of its policy meeting on December 13, the Federal Reserve noted that it might put a stop on further interest rate hikes, considering the fall in US prices.
A Citi Bank analyst said in his investors note that, “the Federal Reserve has aggressively changed its rhetoric to foster an environment of significant easing of financial conditions.”
This includes, “a combination of slower core inflation and rising recession concerns, that led Fed officials to shift from their principal standpoint, to fight inflation with higher-for-longer rates and toward reassuring markets that they will not ‘hang on’ to higher rates for too long.”
Markets are now weighing a 75% probability that the Fed would initiate its rates cut program from March with a reduction of 25 basis points. The market’s expectations have increased drastically in favor of a rate cut, considering that it was just 21% till the end of November, according to the CME FedWatch tool.
The investors are also expecting rate cuts of more than 150 basis points in 2024.
In Asia, Chinese stock markets (.SSEC) fell by more than 0.6% in the mid-day trading, with online gaming companies still struggling with new regulations to curb the spending on video games, while Hong Kong’s market remained closed on account of an additional holiday.
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Currency Markets Movement
As Asian stocks stumbled, the dollar also hovered around in thin trades on the first day after the Christmas holiday, with the dollar index at 101.65, just above the 5-month low of 101.42 it touched last week.
Tll date, the dollar index has remained in the red and is on course to break its two-year winning streak, it went down by almost 1.8% this year.
Meanwhile, yen remained steady at 142.30 per US dollar, as the prospect of Japan’s central bank (BOJ) ending its ultra-easy policy helped lift the currency markets. Yen has gone up by 4% this month alone, and is rallying towards a 7.8% gain against the greenback this year.
Bank of Japan’s Governor Kazuo Ueda said that the likelihood of achieving the inflation target was increasing gradually and it would consider changing its policy if prospects of sustainably achieving the 2% target increases “sufficiently enough”.
In Commodities market, US crude increased again by 0.1% to reach $73.63 per barrel, while the Brent crude went down by 0.42%, as investors maintained a cautious strategy over tensions in the Middle East after Yemen’s attack on Ships crossing from the Red sea.
