Written by Jamie MacGyver
(Reuters) – A look at the day ahead in Asian markets.
Attention turns to China on Monday and the release of November inflation data, with global investors broadly optimistic as a sustained rally on Wall Street continues but is tempered by an increasingly volatile geopolitical backdrop.
The ouster of Syrian President Bashar al-Assad, the uncertainty unleashed on an already turbulent Middle East region, criminal charges against South Korean President Yeon Suk-yeol, and political chaos in France are all potential reasons for investors to avoid risk.
If so, US Treasuries, other government bonds, gold and the dollar may see increased interest in early trading on Monday. The fast-moving events in South Korea could spread throughout Asia, and the country’s Ministry of Finance and Central Bank are expected to do everything in their power to ensure financial stability and protect the won.
The currency has fallen about 10% since the end of September, reaching its lowest levels in two years last week. A move to 1,445 won per dollar, which is very possible, would represent the weakest level since the global financial crisis in early 2009.
On the other hand, the prospect of further interest rate cuts by the US Federal Reserve and lower Treasury yields, coupled with strong US employment numbers on Friday, led to another record rally on Wall Street.
Global currency market volatility may be on the rise, but measures of US stock and bond market volatility are the lowest in months. As long as this remains the case, Wall Street appears poised to end a great year on a consistent basis.
Investors in Asia on Monday will have their first chance to react to Friday’s U.S. nonfarm payrolls report, which showed strong job growth but a slight rise in the unemployment rate last month.
Interest rate traders appear to have put more weight on the unemployment rate – they now fully expect a quarter-point rate cut from the Fed on December 18, and expect an additional 10 basis points of easing over the course of next year.
The main focus of data on Monday in Asia will be consumer and producer price inflation from China. The pace of monthly consumer price contraction is expected to accelerate to -0.4% from -0.3%, which would be the deepest rate of monthly price decline since March. Annual inflation is expected to rise to 0.5% from 0.3%.
However, producer prices are expected to remain deep in deflationary territory with factory gate prices falling at an annual rate of 2.8% in November, little changed from October’s 2.9% decline.
Investors are now also looking forward to China’s upcoming Politburo meeting, where Beijing’s top policymakers will set out their priorities for the coming year. For investors, the government’s 2025 growth target and budget will be the most important targets.
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