Asian markets kicked off the week with a mixed performance, as China’s central bank’s decision to forego a rate cut surprised investors. Meanwhile, Japan’s Nikkei 225 continued its upward momentum, reaching a fresh 34-year peak.
China’s central bank’s unexpected move of not implementing a rate cut added uncertainty to the market, leaving investors cautious. This decision came ahead of the release of China’s economic growth data for the fourth quarter and various monthly figures scheduled for Wednesday. The market anticipates fragile economic recovery data from China, which has been carefully managing stimulus measures.
Chinese blue-chip stocks saw minimal change in response to the central bank’s decision, remaining flat after earlier touching their lowest levels since early 2019. The anticipation of underwhelming economic activity in China has become a familiar theme for investors.
Japan’s Nikkei 225, however, defied the cautious sentiment and climbed to a new 34-year high, building on its impressive gains of 6.6% from the previous week. The index closed with a 0.91% gain, showcasing its resilience and positive momentum.
MSCI’s broadest index of Asia-Pacific shares outside Japan dipped by 0.21%, following a 0.8% loss in the previous week. The thin trading conditions were influenced by a holiday in the United States, and progress on averting a government shutdown in the U.S. added a layer of stability.
In the U.S., futures for S&P 500 and Nasdaq were flat, while EUROSTOXX 50 futures added 0.4%, and FTSE futures gained 0.2%. The ongoing earnings season, with reports from Goldman Sachs and Morgan Stanley, is a focal point for investors. Additionally, U.S. retail sales data and the Iowa caucus are significant events later in the week.
The victory of Taiwan’s ruling Democratic Progressive Party, maintaining the status quo, had limited market impact. However, tensions with China served as a reminder that geopolitical issues could impact markets throughout the year.
Central banks remain in focus, with the World Economic Forum in Davos featuring several European Central Bank speakers. The outlook for global rate cuts is significant, with markets pricing in a 75% probability of a U.S. Federal Reserve cut in March.
The euro has been subdued against the dollar, hovering around $1.0956, while the dollar gained against the yen, reaching 145.18. Gold, considered a safe-haven asset, maintained its strength at $2,054 per ounce.
Oil prices experienced some lift due to disruptions in shipping in the Red Sea, with Brent adding 15 cents to $78.44 a barrel, and U.S. crude rising 7 cents to $72.75 per barrel. However, concerns about demand in 2024 limited the rally.
The U.S. military reported shooting down a cruise missile fired from Houthi militant areas, adding to geopolitical tensions. Despite this, oil prices faced pressure amid worries about global demand.