The first full trading week of 2025 kicks off in Asia on Monday with the sharp slide in China's currency and bond yields, an increasingly tense and fluid political situation in South Korea and a blocked U.S.-Japanese corporate merger all vying for investors' attention.
A raft of purchasing managers index reports is also on deck, offering investors the first glimpse into how many of Asia's biggest economies, including China's, closed out 2024.
The global market backdrop looks relatively bright after Friday's rebound on Wall Street, and equity and bond market volatility seems well-contained.
But emerging market currencies and assets are on the defensive, thanks to elevated U.S. Treasury yields and a soaring dollar. The greenback softened a bit on Friday, but it hit a fresh two-year high the day before and has rallied almost 10% in the last three months.
Much of the dollar's appeal comes from the surge in long-dated U.S. Treasury yields since the Fed began cutting interest rates in September. The central bank's 100 basis points of easing has been met with a rise of 100 bps in the 10-year yield, a remarkable turn of events that has bamboozled most investors - and likely policymakers too.
The picture in China could not be more different. As investors position for a year of policy easing and liquidity provision from Beijing, the yuan and bond yields are coming under heavy downward pressure.
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