Asian stocks eye cautious gains as US fears ease: Markets wrap

(Bloomberg) — Asian stocks are poised for a cautiously positive start in holiday-thin trading after the Federal Reserve’s favored inflation measure came in below expectations on Friday and a U.S. government shutdown was avoided over the weekend.

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Stock futures in Australia, Japan and Hong Kong pointed to gains early Monday, while those in mainland China fell. The S&P 500 rebounded 1.1% on Friday, the largest gain since Nov. 6, as U.S. personal consumption expenditures rose at the slowest pace since May.

The early gains will provide some relief to global markets after stocks suffered their worst weekly decline in four months, as a series of strong US economic data led the Federal Reserve to scale back the number of cuts it expects in 2025. And with Chairman Jerome Powell focusing on progress in inflation Friday’s subdued numbers likely reassured policymakers — and investors — that the economy is slowing despite its strength.

“Lower-than-expected U.S. PCE core inflation data for November suggests the Fed may be too negative on inflation,” Shane Oliver, head of investment strategy and chief economist at AMP Ltd., wrote in a note to clients. “Our overall assessment remains that the trend in equities remains bullish, including Australian equities, but we expect a more volatile and restricted ride over the next year.”

The Australian 10-year bond yield fell by six basis points in early trading, after US Treasuries rose following personal consumption expenditures data on Friday.

The dollar stabilized against its major counterparts after President Joe Biden signed funding legislation to keep the US government running until mid-March, avoiding a year-end shutdown and pushing future spending decisions to a Donald Trump presidency.

Sentiment could shift quickly as investors look to Trump’s inauguration in January and the possibility of sweeping global tariffs, adding to an already difficult time in emerging Asia as sentiment towards Chinese assets declines.

Asian stocks are on track for their first quarterly loss since September 2023 while a gauge of the region’s currencies fell to its lowest levels in more than two years last week. China’s one-year bond yield fell below levels last seen in the global financial crisis on Friday, as traders stepped up their bets on monetary easing.

“The recent weakness in the FX market in Asia, in our view, is largely due to support for the dollar, a significant shift in the Chinese government’s stance towards a somewhat loose monetary stance” and a deterioration in the overall growth outlook, especially in South Korea. said Wei Khun Chong, chief market strategist for the Asia-Pacific region at the Bank of New York in Singapore. “Asian coins are cheap, but be careful not to catch a falling knife.”

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