Asian stocks are struggling with declines in South Korea on Monday ahead of a busy week of central bank meetings where borrowing rates are due to fall, while US inflation data is the latest hurdle to further monetary easing.
Chinese figures released on Monday showed an unexpected 0.6 per cent drop in consumer prices in November, bringing annual inflation down to just 0.2 per cent, underlining the need for more decisive monetary policy stimulus.
The Central Economic Work Conference in Beijing is also scheduled for this week, where leaders are expected to chart the course of the country’s economy towards 2025, although markets are unsure if any new policies will be announced.
Political turmoil in France and South Korea was compounded by the fall of Syrian President Bashar al-Assad’s regime, adding to an already tense situation in the Middle East. This cooled the optimistic reaction to November US payrolls, which showed enough of a recovery to allay fears of a slowdown, but not enough to prevent a rate cut by the Federal Reserve next week.
The next test will be Wednesday’s US consumer price report, where the core reading is expected to remain at 3.3 per cent for November, which should not be an impediment to monetary easing.
“The incoming data supports our forecast for global economic growth by the end of the year, despite a slowdown in the Eurozone economy and rising political tensions,” Bruce Kasman, head of economic research at JPMorgan, said.
“We expect interest rate levels in Canada, the Eurozone and Sweden to fall to 2 per cent or lower over the course of the year, while levels in the US and UK are set to settle close to 4 per cent,” he added. “This month’s meetings should point in that direction.”
Futures suggest an 85% probability of a quarter-per-cent cut at the Federal Reserve meeting on December 17-18, up from 68% ahead of the jobs data release, and additionally price in three more cuts over the next year.
This outlook, combined with the bull market in technology stocks, has led to a more than $1 trillion increase in Nasdaq market capitalisation just last week. On Monday, S&P 500 and Nasdaq futures were modestly lower.
MSCI’s broadest index of Asia-Pacific stocks excluding Japan was down 0.5 per cent. South Korean shares fell 2.4%, even as authorities pledged to make every effort to stabilise financial markets amid uncertainty over the fate of President Yoon Suk Yeol. The dollar added 0.8 per cent to the won at 1,435.53, approaching last week’s peak of 1,443.40.
Japan’s Nikkei strengthened 0.2 per cent, helping to boost economic growth, while Chinese stock indexes fell 0.5 per cent.
