Asian Markets Struggle Even As US Data Fuels Rate Cut Talk

Asian markets drifted Friday following a mixed day on Wall Street, with data showing a continued fall in US inflation unable to relight the buying that characterised much of November.

There was little desire to jump back in the ring at the start of a new month after a tough week in the region saw some of the gains enjoyed over the previous three erased.

The losses come even as expectations grow that the Federal Reserve will cut interest rates in the first half of 2024 thanks to a string of data suggesting its tightening cycle is finally getting prices under control.

And the good news on that front continued Thursday, with figures showing the personal consumption expenditures (PCE) price index — the Fed’s preferred gauge of inflation — slowed further in October.

Other data pointed to a softening in consumer spending and the labour market.

The readings suggest that the Fed appears to be achieving the tough job of reining in inflation and slowing the economy without tipping it into a painful recession.

Adding to the positive outlook globally, data showed inflation in the eurozone came in lower than forecast, giving the European Central Bank room to pause on rates and consider cutting next year.

Traders are now awaiting a planned speech by Fed chief Jerome Powell later in the day, hoping for some guidance on the bank’s plans.

While officials have welcomed the recent run of data, they have been reluctant to call an end to more than a year of rate hikes just yet, warning that prices could flare up again.

“It is still too early to eliminate the tightening bias in the Fed’s forward guidance,” Brian Rose, at UBS Global Wealth Management, said.

“We expect (Powell) to be careful to avoid sounding too doveish.”

While Wall Street had a mixed night, November was a strong month, with the Nasdaq and S&P 500 both up around 10 percent.

However, Asia was not as strong, and the region started December in tepid fashion.

Hong Kong, Shanghai, Sydney, Seoul, Taipei and Jakarta were all down while Singapore, Manila and Wellington rose.

The ongoing weakness in China’s economy remains a problem, even as authorities move to put in place measures to kickstart growth.

While markets are on course for a third straight loss, investors remain concerned owing to the ongoing crisis in the country’s vast property sector.

“There’s still a lot of pessimism — there’s still a wait-and-see attitude,” said James Fletcher of Ethos Investment Management.

Still, analysts remain positive about the global equity outlook.

Stephen Innes said investors were “recognising the Federal Reserve’s successful management of inflation without inducing a severe recession, a concern that was a massive part of the 2023 narrative”.

However, he added that “uncertainties persist amid geopolitical risks such as Russia/Ukraine tensions, Middle East dynamics, the upcoming US Presidential election, and the lagged effects of prolonged higher interest rates”.

Oil prices extended Thursday losses that came after a deal between OPEC and its allies to cut output further left traders with questions.

The grouping said they would further reduce production in the new year, while Saudi Arabia would also extend an ongoing cut.

But observers said the measures were voluntary and it remained to be seen whether members — particularly Russia and some African countries who had hit back at initial calls for a cut — would stick to their pledges.

“The absence of a comprehensive breakdown with only a select number of countries detailing their reduction failed to convince the market,” said ANZ Group Holdings analysts Brian Martin and Daniel Hynes.