Signs of life being breathed back into China's economy and a strong rally on Wall Street on Friday bode well for Asian markets on Monday, although nervousness around President-elect Donald Trump's inauguration could temper the optimism.
U.S. markets will be closed for Martin Luther King Jr. Day, so global liquidity will be lighter than usual, and U.S. debt ceiling jitters are back in sharp focus. Further reason, perhaps, for investors in Asia to tread lightly.
Investors have broadly welcomed the 'market-friendly' parts of Trump's expected agenda like tax cuts and deregulation. But other parts, like tariffs and mass deportations, could rekindle inflation and slow the pace of Fed rate cuts.
Furthermore, higher-for-longer rates could damage growth and stoke 'stagflation' concerns, making the Fed's job even more difficult. His inauguration speech could be laden with market-moving policy pledges, directives and executive orders.
In that context, the saga surrounding TikTok is being closely watched for clues on Trump's policymaking and approach to China. His latest position is he will revive the China-owned social media app's access in the U.S. by executive order after he is sworn in, but wants it to be at least half owned by U.S. investors.
Back in the markets, the dollar and Treasury yields eased off Monday's historic highs and ended last week lower, providing a welcome easing of financial conditions for Asian and emerging markets.
The 10-year yield clocked a 16-month high of 4.80% but fell 17 basis points on the week and the dollar index hit a 27-month high to register only its second weekly loss in 16 weeks.
The catalyst seems to have been relatively tame U.S. inflation data and dovish remarks from Fed Governor Christopher Waller, who floated the idea of three or four quarter-point rate cuts this year.
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