Asian stock markets experienced a boost as optimism surged following a call between former President Donald Trump and Chinese President Xi Jinping.
Equities across regional markets, from Australia to Japan and China, saw gains after former President Donald Trump described his pre-inauguration conversation with Chinese President Xi Jinping as “very good.” Meanwhile, European and US futures remained steady, with Wall Street closed on Monday for a holiday.
The dollar index declined, continuing last week’s trend after breaking a six-week rally. This shift reflects a growing appetite for risk assets in the Asian markets, spurred by the discussions between Trump and Xi on trade, TikTok, and fentanyl. These talks may help set the tone for US-China relations in the early days of the new administration.
Adding to the positive sentiment, TikTok resumed services in the US on Sunday. Trump announced that he would pause enforcement of a law requiring the app’s Chinese owner to find a buyer for three months, further easing tensions.
The sustainability of this momentum depends on how quickly Trump implements his policies, which include lower taxes, higher tariffs, and stricter immigration controls. The inflationary effects of these measures could keep the dollar strong and Treasury yields high. Trump's positions on the tech rivalry with China and climate change are also likely to influence investment decisions across various sectors, including semiconductors, electric vehicles, and shipbuilding.
“What sets the tone for us in Asia is that Trump himself has said he’s had a very good phone call with President Xi Jinping,” said Heng Koon How, head of market strategy at United Overseas Bank, in an interview with Bloomberg TV. He expressed hope that this dialogue would foster a more constructive relationship between the United States and China.
The president-elect is reportedly preparing a series of executive orders related to immigration, energy, federal workforce, and regulatory reform shortly after his inauguration on January 20. This initiative is part of a broader strategy to quickly implement his policy agenda upon taking office.
Among the planned actions is the invocation of emergency powers aimed at boosting domestic energy production, along with efforts to reverse President Joe Biden’s climate change initiatives, according to sources familiar with the situation.
Trump's blend of pro-growth and protectionist policies has led analysts to forecast a less dovish stance from the Federal Reserve, a strengthening dollar, and potential weaknesses in the bond market. Notably, Nomura Holdings Inc. has joined T. Rowe Price in predicting that 10-year Treasury yields could rise to 6% this year. A small faction of bond traders anticipates that the US central bank's next move on interest rates will be an increase, contradicting the prevailing belief that rates will be cut.
In a significant move to foster positive relations, Chinese Vice President Han Zheng met with billionaire Elon Musk and other US business leaders. This meeting highlights Beijing's efforts to establish a constructive atmosphere in US-China ties ahead of Donald Trump’s return to office.
In financial news, Chinese banks opted to keep their key loan prime rates unchanged, aligning with expectations set by Bloomberg Intelligence. This decision reflects the cautious approach of financial institutions amid ongoing economic developments.
The annual meeting of the World Economic Forum is set to commence later on Monday. Among the influential billionaires attending the gathering in Davos, Switzerland, are Larry Fink, Ray Dalio, and Marc Benioff. Notably, Trump is scheduled to address the forum virtually just three days after his inauguration.
As the week progresses, attention will turn to the Bank of Japan's policy decision scheduled for Friday. Approximately three-quarters of economists surveyed by Bloomberg anticipate a hike in the key interest rate. BOJ officials also see a strong possibility of an increase, provided Trump does not create immediate negative surprises, according to sources familiar with the situation.
“I think there’s a high probability that the BOJ will move to adjust rates,” stated Mahjabeen Zaman, head of FX research at Australia & New Zealand Banking Group, in an interview with Bloomberg TV. “All the economic data coming out of Japan strongly supports a rate hike—if not now, then very soon.”
In the commodities sector, oil prices remained stable as the market prepared for the uncertainties that may accompany Trump’s second term in office. Investors are bracing for potential turmoil as the new administration takes shape.
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