Morning Bid: Inauguration warning cools risk-on revival

By Jamie McGeever

(Reuters) – A have a look at the day forward in Asian markets. 

Indicators of life being breathed again into China’s financial system and a robust rally on Wall Avenue on Friday bode properly for Asian markets on Monday, though nervousness round President-elect Donald Trump’s inauguration may mood the optimism.

U.S. markets shall be closed for Martin Luther King Jr. Day, so world liquidity shall be lighter than ordinary, and U.S. debt ceiling jitters are again in sharp focus. Additional motive, maybe, for traders in Asia to tread evenly.

Traders have broadly welcomed the ‘market-friendly’ components of Trump’s anticipated agenda like tax cuts and deregulation. However different components, like tariffs and mass deportations, may rekindle inflation and sluggish the tempo of Fed price cuts.

Moreover, higher-for-longer charges may injury development and stoke ‘stagflation’ considerations, making the Fed’s job much more troublesome. His inauguration speech may very well be laden with market-moving coverage pledges, directives and govt orders.

In that context, the saga surrounding TikTok is being carefully watched for clues on Trump’s policymaking and strategy to China. His newest place is he’ll revive the China-owned social media app’s entry within the U.S. by govt order after he’s sworn in, however needs it to be a minimum of half owned by U.S. traders.

Again within the markets, the greenback and Treasury yields eased off Monday’s historic highs and ended final week decrease, offering a welcome easing of economic situations for Asian and rising markets.

The ten-year yield clocked a 16-month excessive of 4.80% however fell 17 foundation factors on the week and the greenback index hit a 27-month excessive to register solely its second weekly loss in 16 weeks.

The catalyst appears to have been comparatively tame U.S. inflation knowledge and dovish remarks from Fed Governor Christopher Waller, who floated the thought of three or 4 quarter-point price cuts this yr.

The S&P 500 rose 3% final week – its greatest week in 10 – the Nasdaq climbed 2.4% and the MSCI World rose 1.7%. Asian shares underperformed although – the MSCI Asia ex-Japan index rose 0.8%, Chinese language shares edged up solely 0.3%, whereas Japan’s Nikkei 225 fell.

China’s ‘knowledge dump’ final week was extra encouraging than analysts had anticipated. General development within the fourth quarter was 5.4%, which means Beijing met its annual GDP development purpose of round 5%.

The Individuals’s Financial institution of China units rates of interest on Monday. It’s anticipated to ease coverage slowly and cautiously within the first quarter of this yr, however not essentially beginning on Monday.

Traders in Japan, in the meantime, are gearing up for a doable price hike from the Financial institution of Japan on Friday. The newest indicators from BOJ officers are pointing firmly in that route, and markets have reacted accordingly – the yen has rallied, and Japanese shares have fallen.

Listed here are key developments that might present extra route to markets on Monday:

– China rate of interest choice

– Japan equipment orders (November)

– Malaysia commerce (December)