Asian shares faced a cautious start on Monday as China’s central bank surprised markets by refraining from a rate cut, setting a tone of uncertainty ahead of crucial economic data releases later in the week. China is set to report its fourth-quarter economic growth data and a series of monthly figures, with investors bracing for signs of a delicate economic recovery amid ongoing stimulus measures by Beijing.
Chinese blue chips initially dipped to their lowest since early 2019 but later stabilized. Japan’s Nikkei, however, defied the cautious sentiment, climbing to a fresh 34-year peak, recording a 0.91% increase. The overall MSCI Asia-Pacific index outside Japan slipped by 0.21%, following a 0.8% decline the previous week. Thin trading was observed due to a holiday in the United States.
While S&P 500 and Nasdaq futures remained flat, EURO STOXX 50 futures gained 0.4%, and FTSE futures rose by 0.2%. The week will see key earnings reports from financial giants like Goldman Sachs and Morgan Stanley, U.S. retail sales data, and the Iowa caucus.
Geopolitical tensions, such as the victory of Taiwan’s ruling Democratic Progressive Party, reminded investors of global uncertainties. Chief Macro Strategist at Barrenjoey in Sydney, Damien Boey, noted that China is focused on engineering economic stability despite prevailing global risks.
Investors are closely monitoring the possibility of a U.S. Federal Reserve rate cut, with futures implying a 75% chance of a cut as early as March. Soft producer price data has offset a disappointing consumer price report, prompting analysts to adjust expectations for the first Fed cut from June to March.
The Davos World Economic Forum, running through Friday, features several European Central Bank speakers, including President Christine Lagarde. ECB Chief Economist Philip Lane indicated that there would be sufficient data by June to decide on the first in a likely series of interest rate cuts.
The dovish outlook has limited the euro’s gains against the dollar, hovering around $1.0956. The dollar has remained resilient against the yen, trading at 145.18 yen and edging towards last week’s peak of 146.41.
Gold, a non-yielding asset, held steady at $2,054 an ounce, reflecting the prospect of lower global interest rates. Oil prices saw a modest lift due to disruptions in shipping in the Red Sea, but concerns about demand tempered the rally. Brent crude added 15 cents to $78.44 a barrel, while U.S. crude rose 7 cents to $72.75 per barrel.
The global economic landscape remains balanced, with market participants closely monitoring central bank policies, geopolitical developments, and economic data for cues on future market movements.
