Written by Jamie MacGyver
(Reuters) – A look at the day ahead in Asian markets.
A “Santa Rally” is well underway across global stocks, with the Bank of Japan’s dovish take on Tuesday adding fuel to an already smoldering fire after the Federal Reserve indicated last week that US interest rates may be cut early next year.
Even Chinese stocks got in on the action, snapping a four-day losing streak, and Beijing is where investors’ attention in Asia turns on Wednesday as the People’s Bank of China prepares to deliver its latest policy decisions.
But if anything happens the People’s Bank of China will spoil the party. It is widely expected to leave key one- and five-year loan rates unchanged at 3.45% and 4.20% respectively, according to all 28 economists surveyed by Reuters.
Beijing is under increasing pressure to significantly ease monetary or fiscal policy – or both – to heal the ailing real estate sector, stimulate growth and pull the economy out of recession.
But that probably won’t come until sometime next year, and although investors don’t expect any action on Wednesday, it will serve as another reminder of China’s political impasse, economic troubles and market vulnerabilities.
On the other hand, Japanese markets received a boost after the Bank of Japan quashed speculation that its historic move away from negative interest rates was imminent.
The benchmark Nikkei 225 index jumped 1.4%, and is now 2% away from the highest level it recorded in November in 33 years. The yield on 10-year Japanese government bonds fell by more than six basis points, one of the steepest daily declines this year; The yen fell for the third day against the dollar, this time by 0.75%.
The yen’s losses against the euro were particularly sharp, while the risk-sensitive Australian and New Zealand dollars were among the biggest gainers against the US dollar on Tuesday, both sitting near their highest levels in nearly five months.
The Bank of Japan’s relatively dovish bias has reinforced the positive risk appetite already taking hold in global markets. Despite some pushback from Fed officials, investors are still betting on up to 150 basis points of interest rate cuts next year.
After the Dow Jones Industrial Average ventured into uncharted territory last week, the tech-heavy Nasdaq followed suit on Tuesday, rising to a new peak near 15,000 points, while the S&P 500 came within 1% of a new record high as well.
The US FAANG index of big technology stocks rose for the ninth straight day on Tuesday and, remarkably, has nearly doubled in value this year. Perhaps this will give the Hang Seng Technology Index a much-needed boost on Wednesday.
But while the MSCI World Index on Tuesday reached its highest level since April last year as well, the MSCI Asia Index continued to underperform.
Here are the key developments that could provide further guidance to markets on Wednesday:
– Policy decision of the Chinese Central Bank
– Trade with Japan (November)
– Leading Indicators in Australia (November)
(Writing by Jamie MacGyver, Editing by Josie Kao)