Janice R. Andrews
Asian Markets Follow Wall Street’s Positive Lead
Asian markets saw gains on Monday, mirroring the strong performance of Wall Street, as traders reacted positively to lower-than-expected US inflation data. The figures have alleviated concerns about the Federal Reserve adopting a more aggressive stance on interest rates in the coming year.
Strong Start to a Quiet Week
The trading week kicked off on a high note, with major Asian indices in the green. This comes after last week’s market downturn, caused by the Federal Reserve’s forecast suggesting that interest rate cuts may be less substantial than previously expected.
Inflation Data Brings Optimism
The market rally was largely driven by the latest personal consumption expenditures (PCE) index report, which revealed a 2.4% year-on-year increase in November. While slightly up from October, the figure was lower than anticipated, leading to optimism that inflation may be under control. This has sparked hope that the Federal Reserve will be able to continue easing interest rates in the near future.
Following the release of the PCE data, US Treasury bond yields fell after hitting their highest point since May. Additionally, Chicago Fed President Austan Goolsbee expressed confidence that inflation is approaching the Fed’s 2% target, further boosting market sentiment.
Wall Street’s Positive Impact on Asia
The upbeat inflation data pushed all three major US stock indices up by more than 1% on Friday. This momentum was carried over to Asia, with markets in Tokyo, Hong Kong, Shanghai, Sydney, Singapore, Seoul, Taipei, and Manila all showing gains.
Key Asian indices at 0200 GMT:
- Tokyo – Nikkei 225: UP 1.0% at 39,075.07
- Hong Kong – Hang Seng Index: UP 0.4% at 19,790.67
- Shanghai – Composite: UP 0.1% at 3,372.40
Currency Movements and Oil Price Increases
The US dollar weakened against several major currencies following the PCE data release, with the yen, pound, and euro gaining ground. Key currency rates include:
- Euro/dollar: UP at $1.0438
- Pound/dollar: UP at $1.2581
- Dollar/yen: UP at 156.47 yen
Oil prices also experienced modest increases, with West Texas Intermediate (WTI) rising 0.5% to $69.78 per barrel, and Brent North Sea Crude up 0.4% to $73.21 per barrel.
US Government Shutdown Avoided
Investor sentiment was further bolstered by news that US lawmakers had reached a deal to avoid a government shutdown. After intense negotiations, a compromise was reached, preventing the suspension of non-essential government operations that could have affected millions of workers.
President Joe Biden signed the bill on Saturday, calling the agreement a compromise and rejecting Republican demands for rapid tax cuts for billionaires. “This agreement represents a compromise, which means neither side got everything it wanted,” Biden said.
Looking Ahead
While the markets are enjoying the positive momentum, uncertainties remain. Former President Donald Trump’s proposed tax cuts and tariffs could reignite inflationary pressures, presenting challenges for future monetary policy. For now, however, markets are benefiting from the relief caused by easing inflation concerns and Wall Street’s strong performance.
This development highlights the ongoing challenges in balancing inflation, monetary policy, and market expectations as we approach 2024.
