Asian stock markets may experience limited direction as participants await additional economic and market stimulus from China before the holiday period. In the absence of such news, anticipation of more substantial support could lead traders to adopt a cautious stance, especially as China’s forthcoming Consumer Price Index (CPI) and Producer Price Index (PPI) data in January may reveal significant insights into Asia’s delicate economic situation. The figures might confirm a further economic slowdown in China, with deflation accelerating to 0.5% from 0.3% in December. Given that China’s economic health often reflects on the broader Asian and emerging markets, a lack of definitive economic policy support could exacerbate pressures in these regions.
In the United States, the equity markets have reached new highs, highlighting a contrast with the bond market, which significantly influences Asian investments and experienced volatility due to recent developments around New York Community Bancorp. This was triggered by Moody’s downgrade and subsequent changes in executive leadership, raising concerns about potential wider impacts on the credit market. The possibility of further downgrades could enhance risk aversion, particularly affecting credit-sensitive assets. Gold, the Yen and US Bonds are core proxy for any risk-off price action.
Looking forward, the US labour market remains a key area of interest, with upcoming jobless claims data expected to provide insights into the employment situation. Observations from Federal Reserve officials will also be in focus, ahead of critical inflation data next week in the US. With US yields on the rise, strong economic indicators could continue to support a steepening yield curve, further bolstering the US dollar.
