Asian markets started the week cautiously after Wall Street’s recent slowdown. Investors are closely monitoring U.S. inflation data and upcoming corporate reports, crucial for justifying stock valuations.
Geopolitical Concerns:
Adding to the caution, disruptions in the Red Sea impacted oil prices and European shipping costs. Tensions between Israel and Hamas also raised worries about potential spillover to Lebanon.
On a positive note, U.S. congressional leaders reached a $1.6 trillion spending deal, aiming to prevent a government shutdown.
Market Overview:
MSCI’s Asia-Pacific shares outside Japan showed minimal change after a 2.5% retreat. Japan’s Nikkei was closed, but futures hinted at an upward trend.
S&P 500 and Nasdaq faced challenges after a 1.5% loss last week, ending a nine-week winning streak. The 24% rally in the index last year raised concerns about stretched valuations.
Corporate Reporting Season:
Major banks like JPMorgan Chase and Citigroup are starting the reporting season with positive profit expectations. Forecasts predict a 3% YoY increase in S&P 500 profits, driven by economic growth, lower interest rates, and a weaker USD.
Investor Focus:
Investors are closely watching the Consumer Price Index (CPI) report, with futures indicating potential U.S. rate cuts next year. The probability of a move as early as March stands at 69%, subject to changes based on Thursday’s U.S. CPI report.
Currency and Commodity Markets:
Currency markets saw the dollar strengthen against the yen, impacting gold prices. Oil prices edged higher due to Red Sea troubles potentially disrupting supplies.
Global Economic Insights:
This week, attention will be on inflation data from China and Tokyo, with analysts anticipating a slight easing of deflation in China.