A Nervous Start to the Week for Asian Markets
A Cautious Outlook
Good day, esteemed readers. It seems the Asian markets are poised for a rather hesitant start to the week. After last Friday’s unsettling performance on Wall Street, clouds of concern loom over global markets. President Trump’s new tariff threats, alongside worries about the United States economy, contribute to this unease.
Economic Events to Note
On our economic calendar, it’s worth noting a couple of key data points this week. New Zealand’s retail sales and Singapore’s inflation figures are due. Meanwhile, Reserve Bank of New Zealand Deputy Governor Christian Hawkesby will be speaking in Wellington, which should be of interest to investors.
Germany’s political landscape has shifted following an election that saw a victory for the opposition conservatives and a historic performance by the far-right Alternative for Germany. As investors digest this, it could provide a fascinating dynamic for the markets.
Investors Shift Towards Safety
Last week ended on a sombre note due to unexpectedly weak data on economic activity from both the U.S. and Europe. Though talks about a U.S.-led Russia-Ukraine peace deal appeared slightly optimistic over the weekend, they failed to uplift market spirits much. Consequently, investments have gravitated towards safer assets like bonds, gold, and the U.S. dollar. In Japan, anticipated falls in equity futures suggest a drop by 1.75% at opening.
Gold’s Resilience and U.S. Market Woes
Gold’s shining performance is notable, rising for the eighth consecutive week—a feat not seen since 2020—closing near the significant mark of $3,000 an ounce. Meanwhile, the dollar has found a semblance of stability after its recent sell-off. The Nasdaq fared disappointingly, dropping 2.5% and marking its roughest week in three months. One can’t help but wonder if the U.S.’s era of market preeminence is waning, as noted humorously by Bank of America’s strategists: the ‘Magnificent Seven’ may have become the ‘Lagnificent Seven’.
European and Asian Markets Gain Traction
While U.S. markets stumbled, the MSCI World index dipped by just 1%. Eurozone stocks only fell slightly by 0.3% after reaching unprecedented highs, and the MSCI Asia ex-Japan index rose by 1.5% for a consecutive sixth-week boost—the best since November 2022. It’s evident we may be witnessing a shift as investors rotate from Wall Street towards Europe and Asia—it’s sensible, given the overvaluation of U.S. equities.
Promising Developments and Potential Setbacks
Strikingly, Europe equity funds observed their largest inflows since early 2022, according to EPFR. Simultaneously, Chinese tech stocks, especially those listed in Hong Kong, have surged by 35% over six weeks. Yet, scepticism remains. Despite current momentum, a market retracement could occur next week. Mainland China, Japan, and India’s indices remain negative for the year, but their attractive exchange rates might just entice further investment.
The Xi Factor and Regional Challenges
Investors found some cheer in President Xi Jinping’s recent meeting with Chinese tech and business leaders, which contributed to a boost in market sentiment despite lingering concerns over the yuan and trade uncertainties with the U.S.
Key Asian Market Developments
As we turn our gaze to the week ahead, crucial developments to monitor include:
- The German election results and their impacts.
- The February release of Germany’s Ifo index.
- Singapore’s inflation figures for January.
In conclusion, brace yourselves for a whirlwind of activities and uncertainties as the week progresses. The dance of the markets shall continue, and keen eyes will discern the opportunities amid the challenges.
By Jamie McGeever, with edits by Deepa Babington.
