Asian markets experienced a tumultuous start to the week, with a key gauge of regional currencies plummeting to its lowest level in nearly two decades against the U.S. dollar. The equity markets saw mixed performances amid thin holiday trading, as investors grappled with a slew of economic data and geopolitical uncertainties.
Currency Market Declines
The decline in Asian currencies was led by the Japanese yen, which fell 0.3% to 157.66 per dollar. The yen’s weakness came as Japan’s Topix index dropped 0.8% in its first trading session after a multi-day holiday. In contrast, the Australian and New Zealand dollars outperformed, highlighting a diverging trend among the region’s currencies.
China continued to bolster the yuan, maintaining its daily reference rate following a significant slump last Friday. The offshore yuan edged up 0.1% to 7.3504 per dollar, a sign of Beijing’s commitment to stabilize its currency amidst rising economic pressures.
Equity Market Fluctuations
The equity markets across Asia displayed varied performances. Mainland Chinese stocks and Hong Kong’s Hang Seng index both fell by 0.2%. U.S. futures also dipped, reflecting cautious sentiment among investors. Japan’s Topix index was weighed down by a notable decline in Nippon Steel Corp. shares after U.S. President Joe Biden blocked the company’s $14.1 billion acquisition of United States Steel Corp.
Conversely, South Korea and Australia showed gains in their respective benchmarks. In particular, South Korea’s market was buoyed by a legal victory for former President Yoon Suk Yeol, as a court dismissed an appeal against his arrest warrant, stabilizing political tensions.
Market Drivers: U.S.-China Trade Tensions and Policy Outlook
Investors remain wary due to the potential for heightened U.S.-China trade tensions, which could counteract the positive momentum from policy easing and stimulus measures. Optimism around artificial intelligence and domestic demand in China offered some support to markets. However, the shadow of tariffs and trade restrictions lingered, keeping risk appetite in check.
Goldman Sachs analysts, including Andrew Tilton, predict widespread interest rate cuts across most Asian economies in 2025, except for Japan. “We expect reflation to be sustained in Japan, prompting further rate hikes,” they noted.
Notable Corporate Moves and Economic Indicators
Taiwan’s Hon Hai Precision Industry Co., also known as Foxconn, saw its shares rise for the first time in six sessions. The company, a major assembly partner for Nvidia Corp. and Apple Inc., reported stronger-than-expected revenue, suggesting robust demand for AI infrastructure.
In China, a private survey highlighted an expansion in services activity at the fastest pace since May, driven by Beijing’s aggressive stimulus measures aimed at boosting domestic demand. Upcoming data releases, including Thai inflation and Vietnamese industrial production, are poised to offer further insights into the region’s economic health.
Global Economic and Policy Developments
In the U.S., Federal Reserve Governor Lisa Cook and Richmond Fed President Tom Barkin made significant comments on the future trajectory of interest rates. Barkin emphasized a preference for maintaining restrictive rates, echoing the hawkish stance taken by Fed Chair Jerome Powell in December. These remarks, coupled with resilient economic data, add to the complexity of predicting the Fed’s next moves.
Meanwhile, President Biden is expected to announce a ban on new offshore oil and gas development across 625 million acres of U.S. coastal waters. This policy, aimed at curbing fossil fuel exploration, could have significant implications for energy markets.
Commodities and Cryptocurrencies
West Texas Intermediate (WTI) crude oil extended its rally, rising 0.3% to $74.15 a barrel, marking its longest winning streak since April. Spot gold remained largely unchanged, reflecting cautious investor sentiment amid geopolitical and economic uncertainties.
In the cryptocurrency space, Bitcoin and Ether saw minor declines, with Bitcoin slipping 0.3% to $98,234.87 and Ether falling 0.5% to $3,627.45. The digital asset market remains volatile, reacting to broader market dynamics and regulatory developments.
Investors will be closely monitoring several important economic indicators and events this week:
- Monday: Eurozone HCOB services and composite PMI, U.S. factory orders, S&P Global services and composite PMI, Fed Governor Lisa Cook speaks.
- Tuesday: Eurozone CPI, unemployment data, U.S. job openings, trade figures, ISM services, Richmond Fed President Tom Barkin speaks.
- Wednesday: Eurozone PPI, consumer confidence, FOMC minutes, Fed Governor Christopher Waller speaks, ECB Governing Council member Francois Villeroy de Galhau speaks.
- Thursday: China CPI, PPI, Eurozone retail sales, BOE Deputy Governor Sarah Breeden speaks.
- Friday: Japan household spending, leading index, U.S. nonfarm payrolls, unemployment figures, University of Michigan consumer sentiment.
Market Recap
Stocks:
- S&P 500 futures fell 0.1%.
- Japan’s Topix dropped 0.8%.
- Australia’s S&P/ASX 200 was little changed.
- Hong Kong’s Hang Seng and the Shanghai Composite both fell 0.2%.
- Euro Stoxx 50 futures rose 0.2%.
Currencies:
- Dollars’ Spot Index was steady.
- The euro was unchanged at $1.0308.
- The Japanese yen fell 0.3% to 157.66 per dollar.
- The offshore yuan rose 0.1% to 7.3504 per dollar.
Bonds:
- The yield on 10-year Treasuries rose two basis points to 4.62%.
- Australia’s 10-year yield climbed eight basis points to 4.46%.
Commodities:
- WTI crude increased 0.3% to $74.15 a barrel.
- Spot gold remained steady.
