Asian stock markets saw declines on Wednesday, following a range-bound session on Wall Street. Investor caution grew ahead of the US jobs report later in the week and the closure of US equity markets on Thursday.
Decline Across Asian Markets
Stocks in Japan, Australia, and China fell, while US futures also dipped. Nvidia Corp. experienced a drop in after-hours trading, following reports that the Biden administration plans additional restrictions on the export of AI chips.
The gloomy outlook for China’s economy added pressure to regional markets. Data released this week showed a further slowdown in China’s consumer inflation, which weakened to near zero in December. Investors are also awaiting the US employment report, due Friday, which could provide more insight into the Federal Reserve’s future policy decisions.
US Markets Close for National Day of Mourning
US stock markets will close on January 9 in observance of a national day of mourning for former President Jimmy Carter. The bond market will close early at 2 p.m. New York time.
Vincent Chui, head of Asia Pacific wealth management at Morgan Stanley, commented that China’s market may be approaching a turning point. He said, “The Chinese market and Chinese policies are coming to the stage where we are bottoming out,” but noted that China might need more time to attract global investors, especially given the continued appeal of US stocks.
Chinese Inflation and Economic Concerns
China’s year-over-year inflation slowed to just 0.1% in December, as expected. Meanwhile, producer prices contracted 2.3%, though this was less than the forecasted decline. The weakening inflation outlook adds to concerns about the Chinese economy, which has been struggling to recover.
In Australia, the Australian dollar weakened after retail sales rose less than expected in November, strengthening the case for a potential interest rate cut next month. The Japanese yen strengthened slightly, trading at 158 per dollar.
US Employment Data to Influence Market Movement
On Wall Street, the S&P 500 briefly dipped below the 5,900 mark but regained ground later in the day. The dollar strengthened against most of its major peers, while US Treasuries stabilized following a successful $22 billion bond sale, offering some relief after recent market volatility.
The options market is betting that the S&P 500 could move roughly 1.2% in either direction after Friday’s US employment data. According to Citigroup Inc., this would be the biggest implied market move on a jobs day since September.
Economists expect that US employers may have slowed hiring last month, marking a moderation in job growth. However, job growth is still anticipated to remain healthy in 2025. A survey by 22V Research showed that most investors are closely watching the payroll data. Only 26% of respondents expect the data to signal “risk-on” conditions, 40% expect “risk-off,” and 34% anticipate a “mixed/negligible” impact.
The Fed’s Role in Market Expectations
Tom Essaye of The Sevens Report noted that investors are hoping for “Goldilocks” data – a cooling labor market that could ease inflation fears and stabilize stocks. Recent Federal Reserve minutes revealed little new information, with officials signaling a cautious approach to rate cuts amid persistent inflation risks.
Fed Governor Christopher Waller stated his belief that inflation will continue to cool towards the central bank’s 2% target.
Outlook for 2025: Mixed Predictions
The recent slide in stocks and bonds could deepen as traders worry about higher inflation and rising interest rates. However, Morgan Stanley’s Mike Wilson suggested that the declines are unlikely to reach the extreme levels seen in 2022, when markets experienced their worst year since the global financial crisis.
Wilson, the bank’s chief US equity strategist, expects a choppy first half of 2025, followed by a stronger second half. He noted that the Fed’s rate hikes in 2022 were aggressive and unlikely to be repeated in the near future, which could help stabilize markets as the year progresses.
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