Asian stocks experienced fluctuations between losses and gains on Monday, as mixed signals from China’s economic data tempered expectations of a Federal Reserve rate cut. Hong Kong equities bore the brunt of declines, falling to their lowest in a week after poor Chinese economic indicators raised concerns about the need for significant stimulus from authorities. Meanwhile, Japan, South Korea, and mainland China were closed for holidays, and Asian trading of U.S. Treasuries was also halted.
This week is pivotal, with a focus on the anticipated Federal Reserve easing cycle amidst a whirlwind of global policy decisions. Markets are debating whether the Fed will implement a quarter-point or a half-point cut, while the Bank of Japan is expected to maintain current rates after causing turbulence with a rate hike in its last meeting.
The yen saw the most significant gain among major currencies, while the dollar softened following an incident involving former President Donald Trump, which was described by the FBI as an apparent assassination attempt.
Katrina Ell, director of economic research at Moody’s Analytics, noted the high anxiety surrounding the Fed’s decisions. She emphasized the importance of clear communication from the Bank of Japan following last month’s market disruptions.
Given the closures in Asia, investors are expected to remain cautious ahead of upcoming regional trade data and Bank Indonesia’s policy decision, which will precede the Fed’s announcement. Global funds have been attracted to Southeast Asian assets, drawn by the prospect of interest rate cuts and appealing valuations.
This contrasts sharply with China, where August’s factory output, consumption, and investment figures all fell short of forecasts, and the jobless rate unexpectedly reached a six-month high. The People’s Bank of China indicated its intention to combat deflation and implement additional measures to stimulate the economy, following weak credit data and low private sector confidence.
In response, bets on a 50 basis point rate cut by the Fed increased, causing Treasury yields to fall for the second consecutive week, with two-year notes closing at a two-year low on Friday. Market pricing now reflects expectations of about 110 basis points of rate cuts by the end of the year.
Martin Whetton, head of financial markets strategy at Westpac Banking Corp., highlighted the significance of the week ahead, noting that whether the Fed opts for a 25 or 50 basis point cut will be crucial. He anticipates a dovish stance from the Fed, given the recent data and current policy starting point, which should validate the market’s forward pricing.
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