Cautious Trading at the Start of the Week on Asian Markets

On Asian markets on Monday, trading was cautious as investors assess the weak chances for a rapid reduction in interest rates globally, with only Chinese exchanges, after returning from the New Year holidays, achieving significant gains.

MSCI Asia-Pacific stock index was down 0.1 percent this morning, following a 2 percent increase last week. Trading on Asian exchanges was subdued due to the holiday in the U.S., which means Wall Street will not be operating on Monday.

The Japanese Nikkei was down 0.19 percent around 6:30 AM, after a jump of more than 4 percent last week. Meanwhile, the Australian ASX was up 0.1 percent, and the Shanghai index was up 0.55 percent.

The Chinese stock market achieved a slightly larger gain, starting operations after a week of Chinese New Year holidays. The prices of shares in tourism companies rose the most, averaging 1.2 percent, buoyed by news that tourism revenues due to the Chinese New Year increased by 47 percent compared to last year, with as many as 61 million trips made.

However, although the Chinese blue-chip index CSI300 strengthened by 0.55 percent this morning, on top of a 6 percent increase in the week before the holidays, it is still down 1 percent since the beginning of the year and 43 percent compared to the peaks reached in 2021. In contrast, the Japanese Nikkei is up nearly 15 percent since the beginning of the year and is close to record levels from 1989.

The People’s Bank of China kept interest rates unchanged on Sunday, but as the world’s second-largest economy faces deflation, analysts estimate that further monetary stimulus is forthcoming. However, this cannot be said for the Fed, as producer and consumer price indices undermine hopes for a soon start to interest rate cuts.

Bruce Kasman, an economist at JPMorgan, notes that the core consumer price inflation rate, which the Fed prefers, could rise by 0.5 percent in January. Market forecasts that the Fed could lower interest rates in May have fallen to just 28 percent, which was considered a done deal just a few weeks ago. At the same time, markets now expect that by the end of the year, the Fed could lower interest rates by less than one percentage point.

In the foreign exchange markets, rising bond yields are putting pressure on the dollar, causing the euro to appreciate against the dollar by 0.06 percent, to 1.0781 dollars. At the same time, the dollar’s exchange rate against the yen weakened by 0.14 percent, to 149.99 yen. Meanwhile, the dollar index slightly weakened by 0.05 percent, to 104.2 points.