20 January 2025

Written by Jamie MacGyver

(Reuters) – A look at the day ahead in Asian markets.

Signs of a revival in China's economy and a strong rally on Wall Street on Friday bode well for Asian markets on Monday, although tension surrounding the inauguration of President-elect Donald Trump may dampen optimism.

US markets will be closed for Martin Luther King Jr. Day, so global liquidity will be lower than usual, and tensions over the US debt ceiling are sharply back in focus. There may be another reason for investors in Asia to act lightly.

Investors have broadly welcomed the “market-friendly” parts of Trump's expected agenda such as tax cuts and deregulation. But other parts, like tariffs and mass deportations, could reignite inflation and slow the pace of federal interest rate cuts.

Moreover, raising interest rates for a longer period could hurt growth and raise fears of “stagflation,” making the Fed’s job more difficult. His inaugural address could be full of market-moving policy pledges, directives and executive orders.

In this context, the saga surrounding TikTok is being closely watched for clues about Trump's policy making and approach toward China. His latest position is that he will revive the Chinese-owned social media app's US access with an executive order after he is sworn in, but he wants at least half of it to be owned by US investors.

Returning to the markets, the dollar and Treasury yields retreated from their historic highs recorded on Monday and ended last week lower, providing a welcome relief to the financial conditions of Asian and emerging markets.

The 10-year yield hit a 16-month high of 4.80% but fell 17 basis points during the week and hit a 27-month high to record only its second weekly loss in 16 weeks.

The catalyst appears to have been relatively moderate US inflation data and dovish comments from Federal Reserve Governor Christopher Waller, who floated the idea of ​​cutting interest rates by three or four percentage points this year.

Last week, it rose 3% — its best week in 10 weeks — and the Nasdaq rose 2.4% and was up 1.7%. However, Asian stocks underperformed – the index rose 0.8%, Chinese stocks rose only 0.3%, while 225 stocks fell.

China's “data dump” last week was more encouraging than analysts expected. Overall growth in the fourth quarter was 5.4%, meaning Beijing achieved its annual GDP growth target of about 5%.

The People's Bank of China sets interest rates on Monday. The policy is expected to be eased slowly and cautiously in the first quarter of this year, but not necessarily starting Monday.

Meanwhile, investors in Japan are preparing for a rate hike from the Bank of Japan on Friday. The latest signals from Bank of Japan officials point strongly in this direction, and markets have reacted accordingly – the yen rose, and Japanese stocks fell.

Here are the key developments that could provide further guidance to markets on Monday:

– Interest rate decision in China

© Reuters. FILE PHOTO: Cars drive past a display showing stock indexes in Shanghai and Shenzhen near the Shanghai Tower and other skyscrapers in the Lujiazui Financial District in Shanghai, China on February 5, 2024. REUTERS/Xihao Jiang/File Photo

– Japanese machinery orders (November)

– Malaysian Trade (December)

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