Asian stock markets experienced a downturn on Friday, reflecting losses in U.S. equities the previous day. Despite a positive surprise from China’s GDP data, global market sentiment remained cautious, with a focus on the Federal Reserve’s monetary policy and the upcoming inauguration of U.S. President Donald Trump.
Japanese Stocks Hit Hard by Rising Yen
Japanese equities, notably the Nikkei, were among the worst performers in Asia. The Nikkei was on track for its worst week in three months, driven by a strengthening yen. Rising expectations for a Bank of Japan (BOJ) rate hike next week weighed on the index, with the yen strengthening amid market speculation. The yen pushed to a fresh one-month high of 154.98 per dollar on Friday, a result of growing anticipation for a 25-basis-point hike in the BOJ’s January 24 meeting, with market bets at 79%.
Chinese Economy Shows Strength, but Markets Are Unmoved
Despite a better-than-expected growth report for China’s economy, Asian markets showed limited gains. Official data revealed that China’s GDP grew 5.4% year-on-year in Q4, pushing full-year 2024 growth to 5%, right in the middle of Beijing’s target. Chinese stocks saw some support, with mainland blue chips rising 0.3% and Hong Kong’s Hang Seng gaining 0.14%. The yuan also strengthened slightly to 7.34 per dollar in offshore trading. However, the positive economic report did little to lift broader market sentiment across Asia.
Global Stock Indices and U.S. Futures
MSCI’s world index edged down by 0.05%, with the Asia-Pacific shares broad index slipping 0.4%. U.S. S&P 500 futures pointed 0.1% higher, following a 0.2% loss in the cash index overnight. The index had seen a significant 1.8% jump on Wednesday, driven by strong earnings from banks, signaling that market sentiment was still anchored in company fundamentals rather than macroeconomic concerns.
Cautious Market Sentiment Ahead of Trump Inauguration
The end of the week was marked by caution, with investors holding back ahead of Donald Trump’s inauguration as U.S. president on Monday, as well as the Martin Luther King Jr. Day holiday. Kyle Rodda, Senior Financial Market Analyst at Capital.com, noted that the current market environment reflects a shift towards earnings-driven growth, away from broader macroeconomic concerns. Investors also took comfort in the easing fears of persistent inflation or a prolonged pause in the Fed’s rate-cutting cycle.
Bond Yields Decline Amid Fed Rate Cut Speculation
U.S. Treasury yields dropped, with the 10-year yield standing at 4.6125%, after touching its lowest since January 6 at 4.5880% on Thursday. Fed Governor Christopher Waller’s comments suggesting that the central bank could implement three or four interest rate cuts in 2025 if economic data weakens further supported market expectations for a rate reduction by June.
Alternative Assets Find Support as Bond Yields Fall
Declining bond yields boosted alternative assets, including gold and Bitcoin. Gold held firm near its highest levels in over a month, trading at $2,714, while Bitcoin surged to $101,769.43, its highest level since January 7.
Oil Prices Rise on Fed Rate Cut Bets
The speculation surrounding potential rate cuts by the Fed also benefited crude oil prices. Brent crude futures rose by 13 cents to $81.42 per barrel, while U.S. West Texas Intermediate crude futures climbed by 27 cents to $78.95 a barrel. Despite these increases, both benchmarks had posted losses the previous day, with Brent falling 0.9% and WTI dropping 1.7%.
Conclusion
Despite stronger-than-expected economic data from China, market sentiment in Asia remained weak on Friday, influenced by the downturn in global equities and ongoing uncertainty around U.S. monetary policy. Investors are cautious ahead of significant political events, such as Trump’s inauguration, while speculating on potential interest rate cuts from the Federal Reserve later in the year. This environment has supported alternative assets like gold and Bitcoin, while keeping bond yields and oil prices subdued.
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