Asian Stocks to Gain as Trump and Xi Discuss Trade: Markets Wrap

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(Bloomberg) — Asian stocks are set to rise in early trading Monday, tracking their U.S. counterparts after a positive conversation between Donald Trump and Chinese leader Xi Jinping ahead of the U.S. president-elect’s inauguration.

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Australian shares rose while stock futures in Japan and Hong Kong pointed to early gains. An index of US-listed Chinese stocks jumped 3.2% on Friday, as Trump described the talks between the two leaders as “very good.” US futures were little changed in Asian trading with Wall Street closed on Monday for a holiday.

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Trump and Chinese President Xi Jinping discussed trade, TikTok and fentanyl, which may set the tone for relations in the early days of the new administration. Adding to the positive sentiment, TikTok began to restore service in the United States on Sunday as Trump said he would halt enforcement of a law requiring the Chinese app owner to find a buyer for three months.

“The friendly call between Trump and Xi, while just a temporary reprieve amid an irreversible strategic rivalry, serves as additional fuel to reignite the bull run in stocks,” said Kyle Rodda, senior analyst at Capital.com in Melbourne. “It is particularly interesting that Asian indices should open stronger today on the news, having barely moved following much stronger-than-expected Chinese growth data on Friday.”

However, traders are bracing for the early days of Trump’s second term after he reiterated his focus on core priorities such as tax cuts and tariff hikes that could lead to longer-term trade wars. Investors are also concerned about his immigration policy and geopolitical tensions as Trump is already targeting some traditional US allies such as Canada, Mexico and Europe.

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“Financial markets are likely to be volatile in the coming weeks, as they digest the details of the incoming administration’s policies,” Barclays analysts, including Ajay Rajadhyaksha, wrote in a note to clients. “A hundred executive orders on the same first day – in areas as wide-ranging as border policy, tariffs, energy, deregulation, etc. – will likely send investors scrambling to decipher them.”

Ahead of Trump’s inauguration later Monday, Chinese commercial banks will announce key interest rates on one- and five-year loans, as the world’s second-largest economy struggles with chronic weakness in domestic demand. The interest rate is likely to remain on hold for the third straight month, as the People’s Bank of China may be reluctant to cut interest rates in the near term due to pressure on the yuan, according to Bloomberg Intelligence.

Traders are also bracing for the Bank of Japan’s scheduled policy decision on Friday, with about three-quarters of economists in a Bloomberg poll expecting it to raise its key interest rate. Overnight index swaps showed a 99% chance of rising.

Bank of Japan officials also see a good chance to raise interest rates as long as Trump doesn’t raise too many immediate negative surprises, Bloomberg reported Thursday, citing people familiar with the matter. A potential upward revision in price forecasts and strong expectations for wage growth are among the factors favoring the move, the people said.

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Elsewhere in Asia, Australian bond yields rose in early trading, trailing their US counterparts. A small group of bond traders believe the Fed’s next move on interest rates will be a hike compared to the market consensus for a cut.

Strong dollar

The Bloomberg US dollar gauge has risen more than 5% in the 10 weeks since Election Day, snapping a six-week rally on Friday. The developments were similar to the gains made after Trump’s victory in 2016. The move is supported by similar weakness in global currencies considered at risk from Trump’s economic policies, including the euro and the Canadian dollar.

The Mexican peso, a favorite currency for traders to bet on in the run-up to the vote, has fallen more than 3% against the dollar since the election, and is actually better off than most of its 31 major counterparts tracked by Bloomberg.

Meanwhile, the Chinese yuan has also lost more than 3% against the dollar since November 5 in both onshore and offshore transactions, due to tariff risks and a widening gap between US and Chinese government bond yields. The People’s Bank of China has used various tools to support the currency, and expectations of a devaluation have declined since peaking in early December.

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In commodities, it posted a fourth weekly rise, the longest rise since July after the Biden administration took the most aggressive measures on Russian oil since the start of the war in Ukraine. Gold rose for the third week.

Main events this week:

• Interest rates on Chinese loans, Monday
• The annual World Economic Forum kicks off in Davos on Monday
• Donald Trump will be sworn in as the 47th President of the United States on Monday
• Hong Kong Consumer Price Index, Tuesday
• UK Unemployment Claims, Unemployment, Tuesday
• Canadian Consumer Price Index, Tuesday
• New Zealand Consumer Price Index, Wednesday
• Malaysian Consumer Price Index, Interest Rate Decision, Wednesday
• South African Retail Sales, Consumer Price Index, Wednesday
• European Central Bank President Christine Lagarde and other officials speak in Davos on Wednesday
• South Korea’s GDP, Thursday
• Consumer confidence in the euro zone, Thursday
• Interest rate decision in Türkiye, Thursday
• Interest rate decision in Norway, Thursday
• Retail sales in Canada, Thursday
• New US President Donald Trump will join the World Economic Forum in Davos to conduct a “dialogue” online, according to what the forum’s president announced Thursday.
• Japanese CPI, Interest Rate Decision, Friday
• Purchasing Managers’ Index (PMI) for India’s manufacturing and services, Friday
• Eurozone Manufacturing and Services (HCOB) PMI, Friday
• Global S&P Purchasing Managers’ Index (PMI) for UK manufacturing and services, Friday
• European Central Bank President Christine Lagarde and BlackRock CEO Larry Fink speak in Davos on Friday

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Some key movements in the markets:

Stocks

• S&P 500 futures were down 0.1% as of 8:21 a.m. Tokyo time.
• Hang Seng futures rose 1.2%
• Australia’s S&P/ASX 200 rose 0.2%.

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%.
• There was little change in the euro at $1.0270
• The Japanese yen fell 0.1 percent to 156.49 yen to the dollar
• There was little change in the yuan in external transactions at 7.3362 to the dollar
• There was little change in the Australian dollar at 0.6192 US dollars

Cryptocurrencies

• Bitcoin fell 2.3% to $101,204.45
• Ethereum fell 0.9% to $3,201.89

Bonds

• The yield on Australian 10-year bonds rose two basis points to 4.51%.

Goods

• West Texas Intermediate crude fell 1% to $77.88 a barrel
• Gold in spot transactions fell 0.2 percent to $2,698.42 per ounce

This story was produced with assistance from Bloomberg Automation.

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