Moving Markets Today: Asian Stocks Dip, Oil Prices Hold Amid Gaza Ceasefire Talks, RBA Policy Decision, China Inflation, PMIs, and Annual U.S. CPI in Spotlight
Asian markets declined on Monday while the U.S. dollar gained strength due to a robust U.S. jobs report. Concurrently, Chinese stocks remained under pressure due to weak risk sentiment. Despite discussions surrounding a ceasefire in Gaza, oil prices traded nearly flat. The upcoming week’s trajectory will be shaped by the release of service sector Purchasing Managers’ Index (PMI) data. On Tuesday, the Reserve Bank of Australia (RBA) is set to make its first interest rate decision for 2024, potentially discussing the timing of rate adjustments. Investors will closely monitor inflation figures from China and any commentary from central banks throughout the week. Here are five key takeaways for your day.
Federal Reserve Chair Jay Powell Foresees Three Rate Cuts This Year
Jay Powell, the head of the U.S. Federal Reserve, said in an interview aired on Sunday that the rate-setting committee of the central bank plans to reduce interest rates by about three quarter-point increments during the course of this year. Powell mentioned on CBS’s 60 Minutes program that most members of the Federal Open Market Committee anticipate the U.S. central bank will lower rates from the current 5.25-5.5 percent, which is the highest in 23 years, at some point in 2024.
China’s January Services Sector Growth Slows: Caixin PMI
China’s services sector expanded at a slightly slower pace in January due to a decrease in new orders, according to a private-sector survey. This indicates a subdued start for the world’s second-largest economy amidst weak demand and a downturn in the property market, Reuters reported. The Caixin/S&P Global Services Purchasing Managers’ Index (PMI) dipped from 52.9 in December to 52.7 in January, but it remained above the 50-mark, signifying expansion for the 13th consecutive month. This data comes after official reports last week showed another decline in factory activity, giving a glimpse into the economy’s state at the beginning of the year.
Additionally, China announced a 50-basis point reduction in banks’ reserve requirement ratio to release approximately one trillion yuan of long-term funds, according to a statement. Central bank Governor Pan Gongsheng announced the cut on Jan 24, effective Feb 5.
Oil Prices Hold Firm Amid Gaza Ceasefire Talks
During early trading in Asia on Monday, oil prices found stability following sharp declines in the previous week. This came amid ongoing efforts to broker a ceasefire in the Israel-Palestinian conflict, while the U.S. prepared for potential new strikes against Iran-backed groups. Brent crude futures inched up by 17 cents to $77.50 per barrel, and U.S. West Texas Intermediate futures rose by 8 cents to $72.36 per barrel. Both benchmarks had experienced around a 7% decrease by the end of the prior week, with a 2% drop on Friday influenced by better-than-expected U.S. jobs data, hinting at potential delays in interest rate cuts. Progress in ceasefire talks between Israel and Hamas also played a role in the price movement. However, investors remained cautious about further escalation in the Middle East conflict, especially after the U.S. indicated intentions for additional strikes against Iran-backed groups in response to an attack on U.S. troops in Jordan.
What’s Coming Up
This week’s economic agenda includes the international service industry Purchasing Managers’ Index (PMI) data, UK labour force survey results, UK BRC-KPMG retail sales monitor findings, and S&P Global construction PMI data. The Reserve Bank of Australia will announce its interest rate decision on Tuesday, while the UK Halifax house price index for February will be released. In the U.S., focus remains on trade figures and the annual review of the Consumer Price Index (CPI) inflation rate. China will monitor its CPI, Producer Price Index (PPI) inflation, and credit aggregates. Corporate earnings will be in the spotlight, particularly in the U.S., with media giants and tech companies like Fox, News Corp, Disney, Thomson Reuters, The New York Times Company, Alibaba, Arm, Spotify, and Uber expected to report. Additionally, significant global events include the next round of US presidential primary contests in Nevada on Tuesday, and Finland’s presidential run-off election on Sunday.
Asian Stocks Decline While Dollar Reaches New Highs
At the outset of the week, stocks across the Asia-Pacific region, excluding Japan, faced a 1% decline as per MSCI’s comprehensive index. Throughout the year, this index has seen a cumulative 4.5% drop. On a different note, Japan’s Nikkei 225 index rose by 0.5%. China’s CSI300, representing its top stocks, experienced a slight dip of 0.12%, reaching a five-year low from the previous week. Meanwhile, Hong Kong’s Hang Seng Index decreased by 0.5% during the early trading sessions. The robust U.S. payrolls report from the previous week pushed Treasury yields higher, with the 10-year Treasury note reaching 4.077% during Asian trading hours. This led to an increase in regional bond yields, with both Australia’s and South Korea’s 10-year bonds seeing an 11 basis point rise on Monday. The dollar index hit an eight-week high at 104.18, which resulted in the Japanese yen nearing a two-month low, trading at 148.59 per dollar. Spot gold prices dropped by 0.2%, settling at $2,035.09 per ounce, while U.S. gold futures fell by 0.10%, reaching $2,034.00 per ounce. Additionally, Bitcoin experienced a 1.36% decrease, trading at $42,388.