Asian stocks are set for a broadly mixed open on the back of reinforced Fed rate cut bets and the elections of Weekend Taiwan.
Stock futures in Australia and Hong Kong pointed to an early rise when trading begins, while contracts in Japan fell. The S&P 500 was little changed on Friday, posting a weekly gain after U.S. producer prices unexpectedly declined, solidifying bets of a Federal Reserve rate cut in March.
Traders will be monitoring Taiwan’s assets after the Democratic Progressive Party won the presidential election and the more China-friendly Kuomintang won too few seats to control the assembly. Until now, China has had a muted response to the weekend’s results, while the DPP’s loss of its majority in the legislature raises the possibility that the major parties will have to cooperate on policy.
Since the result largely coincides with opinion polls prior to the vote, “we expect a minimal reaction from global financial markets to the election result” Commonwealth Bank of Australia strategists led by Joseph Capurso wrote in a note to clients.
The steady start in Asia comes as a gauge of global stocks has gotten off to a rocky start this year after a rally in 11% from the last quarter, the biggest gain in three years, amid AI euphoria and bets that the global rate hike cycle is over. However, Chinese stocks have slumped with consumer spending, while those in Japan hit their highest level since 1990 last week as decades-long deflation fades and a weak yen supports exporters’ profits. .
“I expect a pause/pullback from here,” Rick Bensignor, president of Bensignor Investment Strategies and former Morgan Stanley strategist, said in a note about Japanese stocks.. “But this long-overlooked market woke up a year ago and remains a place to have money.”
Producer prices fall
Meanwhile, bond markets have been shaken as key inflation and employment data paint a mixed picture for the US economy. Treasuries rose on Friday after the U.S. producer price index for final demand fell for the third straight month. Swaps traders see a nearly 80% chance that the Fed’s easing cycle will begin in March, up from 62% at the beginning of last week, according to data compiled by Bloomberg.
The market is pricing in nearly 170 basis points of rate cuts this year, which “continues to look unreasonably aggressive, especially as real sector data may show the U.S. economy continued to grow above the 1.8% pace in the fourth quarter.” quarter of 23, which the Federal Reserve estimates. “It’s the non-inflationary speed limit,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “Real sector data in the coming days may encourage some reduction in aggressive betting.”
After the big fourth-quarter rally, investors are shifting gears toward what companies have to show on their earnings scorecards. Wall Street’s biggest banks took turns Friday calling for an end to the record streak of their biggest earner. Wells Fargo & Co. surprised analysts by predicting a 9% drop in net interest income by 2024, while Citigroup Inc. forecast a modest decline this year. Even JPMorgan Chase & Co., which sees its 2024 haul to remain at 2023 levels, predicts it will decline over the course of the year.
In addition to more U.S. earnings reports, investors this week will be focused on inflation readings in Germany and the U.K., as well as a host of political leaders and officials, including Chinese Premier Li Qiang, attending the Economic Forum. Annual World Cup in Davos, Switzerland. A speech by Federal Reserve Governor Chris Waller will also be closely watched after officials last week sought to temper any expectations of an imminent rate cut.
“Fed Governor Waller gave an early and strong signal in October that the Fed might stop raising rates and consider a pivot,” Stephen Gallagher, an economist at Societe General, wrote in a note to clients. “We will keep an eye on any pullback in financial market expectations for a rate cut in March.”
Elsewhere, oil and gold rose on Friday as the United States and its allies launched airstrikes against Houthi rebels in Yemen.
Main movements in the markets:
Hang Seng futures rose 0.2% at 6:56 a.m. Tokyo time. S&P/ASX 200 futures were little changed.
The Bloomberg Dollar Spot Index was little changed. The euro was little changed at $1.0952. The Japanese yen was little changed at US$144.93. The offshore yuan barely changed and stood at 7.1876 per dollar. The Australian dollar was little changed at US$0.6687.
Bitcoin fell 1.3% to US$42,405.07. Ether fell 2.1% to $2,518.28.
Australia’s 10-year performance it advanced one basis point to 4.08%.
West Texas Intermediate Crude rose 0.9% to US$72.68 a barrel. Spot gold rose 1% to $2,049.06 an ounce