Markets Overview
- ASX SPI 200 futures up 0.3% to 8,317.00
- Dow Average up 0.8% to 43,487.83
- Aussie down 0.2% to 0.6201 per US$
- US 10-year yield rose 1.5bps to 4.6270%
- Australia 3-year bond yield rose 1.1 bps to 3.96%
- Australia 10-year bond yield little changed at 4.50%
- Gold spot down 0.4% to $2,703.25
- Brent futures down 0.6% to $80.79/bbl
Economic Events
- 11:00: (AU) Australia to Sell A$300 Million 4.25% 2034 Bonds
Asian equities were set to climb in early trading on Monday, tracking US peers higher following a positive conversation between Donald Trump and Chinese leader Xi Jinping ahead of the US President-elect’s inauguration.
Equity futures in Australia, Japan and Hong Kong pointed to early gains while a gauge of US-listed Chinese shares jumped 3.2% on Friday as Trump described the talk as “very good” between the two leaders. Markets will be closed in the US on Monday due to a holiday.
Trump and Chinese President Xi Jinping discussed trade, TikTok and fentanyl, which could set the tone for relations in the early days of the new administration. Adding to positive sentiment, TikTok started restoring service in the US on Sunday as Trump said he would halt enforcement of a law requiring the app’s Chinese owner to find a buyer for three months.
Still, traders are bracing for the first days of the Trump’s second term after he reiterated his focus on core priorities such as cutting taxes and raising tariffs that could lead to more prolonged trade wars. Investors are also worried on how action on immigration will affect the US economy, and fear heightened geopolitical tensions with Trump already taking aim at some traditional US allies like Canada, Mexico and Europe.
“The amicable call between Trump and Xi, while only a temporary reprieve amidst irrevocable strategic competition, is extra fuel to reignite bullishness in equities,” said Kyle Rodda, a senior analyst at Capital.com in Melbourne. “It’s particularly telling that Asian indices ought to open firmer today because of the news, having barely moved after much stronger than expected Chinese growth data on Friday.”
Ahead of Trump’s inauguration later Monday, China’s commercial banks will announce their one- and five-year loan prime rates as the world’s number 2 economy suffers from chronic weakness in domestic demand. The rate will likely be on hold for a third straight month as the People’s Bank of China may be reluctant to reduce policy rates near-term due to pressure on the yuan, according to Bloomberg Intelligence.
BOJ officials also see a good chance of a rate increase as long as Trump doesn’t trigger too many immediate negative surprises, Bloomberg reported on Thursday, citing people familiar with the matter. A likely upward revision of price forecasts and robust wage growth expectations are among the factors favoring a move, the people said.
Elsewhere in Asia, Australian bond yields edged higher in early trading, following their US peers. A small group of bond traders believe the Federal Reserve’s next move on interest rates will be a hike compared to market consensus of a cut.
The Bloomberg gauge of the greenback has risen over 5% in the 10 weeks since Election Day, only to snap its six-week rally on Friday. The advances have been similar to the gains it posted after Trump’s 2016 victory. Underpinning the move is a corresponding weakness in global currencies considered at risk from Trump’s economic policies, including the euro and Canadian dollar.
The Mexican peso, traders’ favorite currency to bet against in the lead up to the vote, has weakened over 3% versus the greenback since the election, actually faring better than most of its 31 major peers tracked by Bloomberg.
China’s yuan, meanwhile, has also lost more than 3% versus the dollar since Nov. 5 in both onshore and offshore trading, due to tariff risks and a widening gap between US and Chinese government bond yields. The People’s Bank of China has deployed various tools to support the currency, and depreciation expectations have been trimmed since peaking in early December.
In commodities, oil notched a fourth weekly rise last week, the longest run since July after the Biden administration introduced the most aggressive measures on Russian oil since the onset of the war in Ukraine. Gold edged higher a third week.
