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What’s happening: Most major Asian stock indices ended trading with gains on Monday, which one of them reached record highs.
What happened: Activity in the global financial markets remained light on Monday, with US markets closed for the Martin Luther King Jr. holiday.
Investors responded to Japan’s release of machine orders data, China’s central bank announcing its monetary policy decision and India’s inflation figures.
Why it matters: Although Japan’s machine tool orders declined by 9.9% year-on-year to ¥126.57 billion in December, this represented a significant improvement from November’s 13.6% downturn. The data also marked the softest contraction in machine tool orders since January 2023.
The Bank of Japan has continued with its ultra-accommodative monetary policy, boosting the country’s stock markets. Although the JPY/USD forex pair gained around 0.67% on Monday, the Japanese yen has lost about 2.5% over the past three months versus the US dollar. The yen weakness has made Japanese stocks even more attractive for foreign investors, increasing their demand.
The Nikkei 225 rose by 0.91%, or 324.68 points, to settle at 35,901.79 on Monday.
Meanwhile, the People’s Bank of China (PBoC) held its one-year policy loan interest rate at 2.5% on Monday. Markets had expected the central bank to cut rates to stimulate the economy. Despite this disappointment, Chinese shares rose on news of an injection in liquidity.
Given deflationary pressures in China, the central bank called for more stimulus measures. With 779 billion yuan worth of one-year MLF (medium-term lending facility) loans to certain financial institutions set to expire in January, the PBoC announced a net injection of 216 billion yuan into the banking system.
China’s Shanghai indices rose by 0.15%, or 4.31 points, to close at 2,886.29 on Monday.
India reported a 0.73% year-on-year rise in wholesale prices in December, better than market expectations of a 0.90% rise. Wholesale manufacturing prices in the country also declined by 0.71% year-on-year in December, after a 0.64% decline in the previous month. It represented the tenth consecutive month of decline in manufacturing costs in India.
The Sensex jumped 1.95%, or 759 points, to close at a record high of 73,327.94 on Monday.
While Singapore’s benchmark stock indices rose by 0.24%, Hong Kong’s Hang Seng was the only major Asian indices to record a decline, of 0.17%.
The rallies in various Asian stocks took the Asia Dow higher by 0.27% to 3,608.45.
What to watch: Japan is set to report its PPI data today. Producer prices in Japan rose 0.3% year-on-year in November, a slowdown from October’s 0.9%. The figure also represented the lowest producer inflation since February 2021.
China’s GDP growth, due for release on Wednesday, will also be in focus. The Chinese economy had expanded by 4.9% year-on-year in the third quarter of 2023, beating market expectations of 4.4%. The country’s GDP growth is expected to accelerate to 5.3% in the fourth quarter.
Context: The EUR/USD pair closed almost flat on Monday, after starting the session on a positive note.
Details: The euro started the week on a positive note, but later declined on economic data from Germany.
The euro found some support on rising speculations of the European Central Bank (ECB) holding off from cutting interest rates for most of this year.
On the economic data front, the EU reported a trade surplus of €20.3 billion for November, versus a trade deficit of €13.8 billion in the year-ago month. In the January to November, the surplus came in at €49.7 billion, versus a deficit of €323.7 billion in the same period in the previous year.
The EU’s industrial production declined by 0.3% in November, in-line with market expectations.
Market sentiment was impacted by a preliminary estimate showing that the German economy had contracted by 0.3% in 2023.
The EUR/USD forex pair closed almost flat at 1.0951 on Monday, amid subdued trading on account of US markets being closed.
What to watch: Investors will watch Italy’s inflation data and Germany’s economic sentiment index, both due to be released today. The annual inflation rate in Italy, which came in at 0.7% in December, is expected to ease to 0.6% in January.
The ZEW indicator of economic sentiment for Germany had risen to 12.8 in December and is expected to decline to 12 in January.
Other Markets: European indices closed lower on Monday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index down by 0.39%, 0.49%, 0.72% and 0.54%, respectively.
Ukraine presented its peace plan to 83 countries, in Switzerland on Sunday, and called for China’s involvement in talks to end the war with Russia. The news sent the safe-haven US dollar index higher in forex trading this morning.
South Korea’s export prices fell 2.3% year-on-year in December, following a 7.2% decline in the previous month. This representing the 12th consecutive month of decline sent the KRW/USD pair lower in forex trading this morning.
Australia’s consumer confidence fell to -1.30% in January, from 2.70% in December, exerting pressure on the AUD/USD forex pair.
New Zealand’s capacity utilisation increased to 91.40% in the fourth quarter of 2023, from 87.30% in the prior quarter, lending support to the NZD/USD forex pair.
Brazil’s business confidence index rose by 2.2 points to 53.2 in January. This being the eighth consecutive month of the index remaining in the expansion zone sent the BRL/USD pair slightly higher in forex trading this morning.
Germany’s inflation rate and economic sentiment, Britain’s unemployment rate, average earnings, and employment change, Italy’s inflation rate, EU’s economic sentiment, Canada’s housing starts, Japan’s Reuters Tankan Index as well as speeches by BoE Governor Bailey Speech and Fed Governor Christopher Waller.
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