Asian stocks have had a rather interesting weekend. Today, the dollar surged to a two-year peak against major currencies, supported by a payrolls report released on Friday. The report revealed an addition of 256,000 jobs in December. As a result, stock markets in China, India, and South Korea experienced a downturn.
According to reports, South Korea’s Kospi declined 1.1%, India’s Sensex fell 0.8%, and Japanese markets have been closed today. In addition, Hong Kong’s Hang Seng index experienced a 1.2% decline, while the CSI 300 in mainland China experienced a 0.5% decline.
Jason Lui, head of Asia-Pacific equity and derivative strategy at BNP Paribas, said, “People are surprised by the economic strength in the US […] With US interest rates so high, you will have a liquidity drain in Asia, with capital flowing to the US or staying there.”
Notably, the dollar index tracks the US currency against the yen, euro, and other major currencies. It reached its highest level since November 2022. Additionally, the December report blew past consensus estimates and raised concern that a strong economy could slow the Fed’s pace of rate cuts.
US Dec payrolls +256k (exp +165k) and unemp fell -0.1% to 4.1%, but wages growth slightly less than exp at +0.3%m/3.9%yoy.Jobs data is noisy, but likely too strong for Fed so adds to case to “take time to assess” with a Jan pause & a March cut is now 50/50(EvercoreISI charts) pic.twitter.com/j5wg763hHu
— Shane Oliver (@ShaneOliverAMP) January 10, 2025
Markets are becoming more and more unpredictable, but one thing is for sure: the US economy has had a significant effect on global markets.
What next for Asian markets?
Sunil Tirumalai, head of Asian equity strategy at UBS, said, “Emerging market equities traditionally perform better when US interest rates are lower […] The Fed not cutting and weak currencies means less room for Asian rate cuts.”
Notably, mainland Chinese equities have experienced a consistent 17% decline since their peak on October 8, 2018. This is because the market became increasingly apprehensive about the economic repercussions of Donald Trump’s second term and as expectations for a bazooka-style stimulus from Beijing diminished.
In the same light, Sunil Tirumalai also acknowledges that China is still in a bear market. “Some stimulus measures have been a positive surprise […] The extension of the trade-in scheme to a wider array of consumer goods, for example, came earlier than we thought.”
However, Jason Lui explained that mainland investors were continuing to transfer funds from low-yield savings accounts to the equity market. He stated, “The onshore [Chinese] market is still more resilient relative to external noise.”
Meanwhile, oil prices climbed to a four-month high on Friday as the United States imposed broad new penalties against Russian oil. Additionally, Brent crude, the international benchmark, rose 1.6% to $81 per barrel, while US benchmark West Texas Intermediate rose 1.7% to $77.90 per barrel.
Australian stocks decline
The Australian shares fell to a two-week low, with a sell-off in technology firms and banks leading the way. This decline was also precipitated by a surprise increase in US employment data.
Apparently, the S&P/ASX 200 Index closed at 8,191.20, a decrease of 102.2 points, or 1.2 percent. This is in response to a sell-off on Wall Street. Nine of the 11 industry groups finished in the red. The All Ordinaries index experienced a 1.3% decline.
Additionally, Commonwealth Bank experienced a 2.1% decline to $152.76, while NAB experienced a 1.9% decline to $37.22, Westpac experienced a 2.2% decline to $31.87, and ANZ experienced a 1.3% decline to $28.90.
Technology equities that are sensitive to interest rates also experienced large losses. WiseTech, a software company, experienced a 3.6% decline to $121.02, while NextDC experienced a 4% decline to $14.79.
Bank of America deputy US chief economist Aditya Bhave said the possibility of an interest rate hike should also be considered. He explained, “Our base case has the Fed on an extended hold […] But we think the risks for the next move are skewed toward a hike. The bar is high since the Fed still thinks rates are restrictive. But hikes will likely be in play if year-on-year core inflation exceeds 3%, or long-term inflation expectations become unanchored.”
Meanwhile, as the US dollar was strengthened, the wounded currency traded at $61.34. This level was almost five years below its previous low. According to analysts at the National Australia Bank, the current decline has the potential to exacerbate short-term inflationary pressures.
A Step-By-Step System To Launching Your Web3 Career and Landing High-Paying Crypto Jobs in 90 Days.
