Japan and Hong Kong spearheaded the surge in Asian stocks as the dollar weakened, with investors eagerly anticipating U.S. inflation data that could provide insights into the Federal Reserve’s future policies. Japanese benchmark shares were poised to reach three-decade highs, driven partly by the recent depreciation of the yen. The introduction of a tax-free retirement savings program also played a role in attracting domestic investments.
Market strategists noted a positive shift in attitude towards Japanese stocks among both domestic and foreign investors, evident in the ongoing rally. Hong Kong stocks showed signs of reversing their longest losing streak since August, seen by some analysts as a retracement after a recent selloff rather than a fundamental change.
Mainland China’s share index experienced its best day since the beginning of the year, and global fund giant Loomis Sayles & Co. expressed optimism about the nation’s real-estate dollar bonds following successful debt restructuring efforts. U.S. stock futures saw modest gains.
South Korea witnessed an uptick in equities and bonds following its central bank’s shift to a more neutral policy stance, signaling a pause on further rate hikes. Global equities rebounded this week after experiencing the largest weekly loss since October, fueled by expectations of potential rate cuts by the Federal Reserve.
JPMorgan Asset Management speculated that the Fed might cut interest rates more than currently indicated, potentially driving a rally in shorter-maturity Treasuries. Treasury yields inched higher in Asian trading, while the dollar weakened against its Group-of-10 peers.
Investors prepared for potential turbulence as U.S. consumer price data was scheduled for release later in the day. Bond traders reduced bets on Treasury gains for the month, and the swaps market indicated a lower likelihood of expected Fed cuts by March compared to late last year’s pricing.
Fed Bank of New York President John Williams emphasized the need for more signs of economic cooling before considering rate reductions. Despite acknowledging that current policy levels are sufficient to bring inflation to the central bank’s target, Williams’ tone differed from previous statements made in December.
The U.S. Securities and Exchange Commission approved ETFs directly investing in Bitcoin, leading to a rise in the digital currency’s value. Bitcoin reached above $47,700 before settling around $46,300, while Ether climbed to its highest point since May 2022.
In other developments, Australia reported a better-than-expected trade balance for November, and China’s December new lending and M2 money-supply data were anticipated.
The offshore yuan gained ground as China’s central bank set its currency fixing at the strongest level since November, offering support after a recent slump. Oil prices ticked higher due to ongoing tensions in the Middle East, and gold also experienced gains.
Key events to watch later in the week include U.S. CPI and initial jobless claims, China’s CPI, PPI, and trade data, UK industrial production, U.S. PPI, and fourth-quarter results from major U.S. banks.
