Asian markets have largely followed the positive trend set by Wall Street, although Chinese stocks are facing difficulties sustaining a rally. Japan’s Nikkei soared by 1.5%, while the broadest index of Asia-Pacific shares outside Japan, MSCI, rose by 0.2%. However, gains in Australia and South Korea were offset by a 0.2% decline in Hong Kong’s Hang Seng index. This struggle in Chinese stocks has been attributed to concerns about deflationary pressures in China and indications that the economic slowdown may persist. The volatile trade in China’s blue-chips saw a 0.4% increase, as investors responded to Beijing’s measures to stabilize the market, but ongoing deflationary expectations dampen sentiment.
Data released on Thursday revealed a significant decline in China’s consumer prices, with a 0.8% drop in January compared to the previous year. This reduction marks the largest decline since 2009 and surpasses expectations for a 0.5% decline. The negative sentiment was further fueled by falling producer prices. While China needs to promptly and aggressively address the risk of entrenched deflationary expectations among consumers, their fiscal policy response has been slow. Pinpoint Asset Management President Zhiwei Zhang emphasized the necessity for quick action, stating that monetary policy has become more supportive while fiscal policy remains relatively unchanged.
In an effort to instill market stability ahead of the Lunar New Year holiday, China ousted the head of its securities watchdog. However, this action elicited only a muted response from investors. While officials attempt to steer the ship, stability in the property sector is vital. Market turnaround and increased consumer confidence are dependent on rising property prices, fostering a wealth effect. Kerry Craig, global market strategist at J.P. Morgan Asset Management, believes that offshore investors have started exploring other markets or diversifying their investments as a result.
Positive performance on Wall Street, buoyed by strong earnings from companies like Chipotle Mexican Grill and Ford Motor, has had a significant impact on Asian markets. The S&P 500 closed at a record high, alleviating concerns about U.S. regional banks. New York Community Bancorp also experienced an upward trend after appointing a new executive chairman and announcing potential reductions in exposure to the commercial real estate sector.
Multiple Federal Reserve officials expressed their preference to postpone interest rate cuts until there is more confidence that inflation will decline to 2%. This sentiment aligns with Chair Jerome Powell’s recent message. While there is still an 80% probability of a rate cut as early as May, futures currently imply a decrease of around 120 basis points for the entirety of 2024, down from 145 basis points at the end of the previous week. Treasury yields remained relatively unchanged after a slightly higher previous day, reflecting the Fed’s resistance to early rate cuts. Furthermore, the Treasury Department’s successful sale of $42 billion in 10-year notes eased concerns about excess supply in the market.
Oil prices continue to climb, with a three-day upward trend. This increase is supported by a larger-than-expected drop in U.S. fuel stocks and ongoing geopolitical tensions in the Middle East. Israeli Prime Minister Benjamin Netanyahu rejected the most recent ceasefire offer from Hamas. Brent crude rose by 0.3% to $76.46 per barrel, and U.S. crude edged up by 0.3% to $74.08 per barrel.
Spot gold prices experienced a 0.2% increase, reaching $2037.49. Although gold prices fluctuate, they have been generally rising due to various economic uncertainties and market volatility.
While most Asian markets have followed Wall Street’s positive performance, concerns surrounding Chinese stocks persist. Deflationary pressures, slow fiscal policy response, and the need for stability in the property sector contribute to the uncertainty. Influenced by Wall Street, Asian markets have shown resilience and optimism, despite ongoing geopolitical tensions and uncertainty in the global economy. As investors navigate these complexities, diversification and careful monitoring of market trends will be crucial in ensuring a successful investment strategy.
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