The global financial landscape experienced a notable shift as US equity futures climbed and Asian markets rebounded after a challenging week. The subdued inflation data in the United States rekindled expectations of Federal Reserve rate cuts, offering some optimism to investors amid cautious global sentiment.
US Market Highlights
US equity futures rose by 0.5%, driven by a rebound in Asian stocks and supported by the core Personal Consumption Expenditures (PCE) price index, which increased at its slowest pace since May. The S&P 500 Index surged by 1.1% on Friday, further bolstering market confidence. However, sentiment remains tempered as investors brace for the potential global economic shifts anticipated under the Trump administration, including the imposition of sweeping tariffs.
Shane Oliver, head of investment strategy at AMP Ltd., noted:
“Lower-than-expected US core PCE inflation data for November suggests that the Fed may have gotten too negative on inflation. The trend in shares is still up, but expect a far more volatile and constrained ride over the year ahead.”
In Washington, President Joe Biden signed funding legislation to avert a government shutdown, extending operations until mid-March. This decision delays major spending actions until after President-elect Donald Trump assumes office, further intensifying focus on his economic policies.
Asian Markets: A Rebound Amid Challenges
Asian equities broke a six-day losing streak, with South Korea and Taiwan leading the charge, each posting gains exceeding 1%. Semiconductor and computing stocks in China also saw growth after Premier Li Qiang emphasized the need for innovation and infrastructure development in these sectors.
Si Fu, a portfolio strategist at Goldman Sachs, expressed cautious optimism:
“At current levels, we do think there is some upside driven by policy easing and fundamental improvements. Domestic policy measures will help offset the negative impact of US tariffs.”
Despite the gains, Asian stocks are on track for their first quarterly loss since September 2023. Regional currencies also remain under pressure, with a Bloomberg gauge hitting its lowest level in over two years last week.
Key Global Developments
China’s Strategic Moves
Premier Li Qiang urged innovation in semiconductors and computing infrastructure, reflecting China’s continued focus on tech sector growth despite economic headwinds and potential US tariffs.
Japan’s Corporate Shake-Up
In Japan, Honda Motor Co. and Nissan Motor Co. are reportedly finalizing a merger agreement by mid-2025, signaling a significant realignment in the automotive industry.
Singapore Post Controversy
Singapore Post Ltd. faced a leadership shake-up after allegations involving its international e-commerce logistics parcels business. The company’s shares plunged following the announcement.
Oil Prices Stabilize
Oil prices edged higher after a weekly drop, as traders evaluated President Trump’s statements about reasserting US control over the Panama Canal.
Market Sentiment and Outlook
The anticipation of Federal Reserve rate cuts in 2025 remains a driving force behind market movements. With the core PCE data indicating a slower pace of inflation, the Fed is likely to recalibrate its policy approach. This could see interest rates fall from their current 4.75% to around 3.75% by the end of 2025.
However, global uncertainty looms as investors monitor:
- The Trump administration’s proposed tariffs and their potential impact on trade and global supply chains.
- The effectiveness of China’s domestic policy easing in countering external economic pressures.
- Developments in emerging markets, where persistent struggles have led to significant outflows from EM-dedicated funds.
Stay updated with Cresco Capital’s insights for the latest analysis and strategies to navigate the evolving economic landscape.