Asian equities saw gains, following a positive exchange between former President Donald Trump and Chinese President Xi Jinping. This development raised hopes of easing tensions between the United States and China.
Optimism as Markets Open Higher
Shares in Australia and Japan advanced, while Hong Kong and mainland China also saw positive openings. A gauge of US-listed Chinese stocks jumped 3.2% on Friday, driven by Trump’s description of the pre-inauguration conversation with Xi as “very good.” However, US futures dipped slightly in Asia, with Wall Street closed on Monday for a holiday.
This optimism followed a conversation where Trump and Xi discussed trade, the TikTok app, and fentanyl. These talks are expected to influence the early stages of their relationship in the new administration. Additionally, TikTok began restoring its services in the US on Sunday, as Trump announced he would pause enforcement of a law requiring the app’s Chinese owner to find a buyer for the next three months.
“The positive call between Trump and Xi, though temporary, gives additional fuel to drive bullish sentiment in the market,” said Kyle Rodda, a senior analyst at Capital.com in Melbourne. “It’s particularly notable that Asian indices opened stronger today despite stronger-than-expected Chinese growth data on Friday.”
Market Uncertainty Ahead of Trump’s Second Term
Despite the optimism, traders are preparing for potential volatility in the coming weeks. President Trump is set to issue a series of executive orders on immigration, energy, federal workers, and regulatory reforms as he takes office. These actions are expected to include tighter border restrictions and the setup for mass deportations.
“Financial markets will likely experience volatility as they process the incoming administration’s policies,” wrote Barclays analysts, including Ajay Rajadhyaksha. “With a hundred executive orders on the first day addressing topics like tariffs, energy, and deregulation, investors may struggle to understand the implications.”
Chinese Banks Hold Key Rates Steady
In other news, Chinese banks maintained their key loan prime rates, as expected by Bloomberg Intelligence. The annual meeting of the World Economic Forum began on Monday, with influential figures like Larry Fink, Ray Dalio, and Marc Benioff scheduled to attend in Davos, Switzerland. Trump will address the gathering virtually three days after his inauguration.
Focus Turns to Bank of Japan and Global Markets
Later this week, attention will shift to the Bank of Japan’s policy decision on Friday. A Bloomberg survey shows that about three-quarters of economists expect a rate hike, with overnight index swaps reflecting a 99% chance of this outcome.
Japanese officials also believe a rate increase is likely, as long as Trump avoids triggering significant negative surprises, according to sources familiar with the matter.
Trump’s Digital Token Disrupts Crypto Market
A digital token launched by Trump has shaken the cryptocurrency market, attracting billions of dollars in trading volume while raising concerns about potential conflicts of interest. Meanwhile, the broader cryptocurrency market struggled, with Bitcoin falling by 3.5% on Monday.
The Bloomberg Dollar Index rose more than 5% over the past 10 weeks since the election, before snapping its six-week rally on Friday. The rise is linked to a decline in global currencies, including the euro and the Canadian dollar, that are seen as vulnerable to Trump’s economic policies.
China’s yuan has also dropped over 3% against the dollar since November 5, due to tariff risks and the growing gap between US and Chinese government bond yields. The People’s Bank of China has taken measures to support the yuan, and expectations for further depreciation have decreased since early December.
Oil Prices Hold Steady Amid Inauguration Uncertainty
In commodities, oil prices remained steady ahead of Trump’s inauguration. Markets are bracing for a period of uncertainty as his second term begins, with expectations of turbulence and potential policy shifts at the start of his presidency.
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