Asian stocks see little holiday cheer as rate-cut rally wears thin

Investing.com-- Asian stocks moved in a flat-to-low range in holiday-thinned trade on Tuesday as soft U.S. inflation data fueled bets that the Federal Reserve will cut interest rates in 2024, although uncertainty over the timing of the move remained.

Regional markets took few positive cues from a softer-than-expected reading on the PCE price index- the Fed’s preferred inflation gauge, as a rally on the prospect of lower lending rates now appeared to be wearing thin.

Doubts over more gains in U.S. markets also kept sentiment muted, as Wall Street indexes came within sight of new highs last week. U.S. stock index futures were muted on Tuesday.

Thin trading volumes, on account of Christmas holidays in several major markets, also offered Asian markets little direction.

Still, most regional markets were sitting on strong gains in 2023 after the Fed signaled it was done raising interest rates and will consider rate cuts in 2024.

But markets remained uncertain over the timing of the rate cuts, as several Fed officials pushed back against expectations that interest rate cuts will come early. Signs of worsening global economic conditions also kept risk appetite muted.

Japanese shares flat as BOJ talks policy pivot

Japan’s Nikkei 225 index moved little on Tuesday after Bank of Japan Governor Kazuo Ueda marked progress towards the bank’s 2% annual inflation target.

Progress towards the inflation target marks a greater chance of the BOJ eventually ending its ultra-dovish stance, after more than seven years of negative interest rates. Ueda's comments came after data last week showed Japanese inflation fell substantially in November.

But the move bodes poorly for Japanese stocks, given that loose monetary conditions were a key driver of a stellar rally in regional markets this year. The BOJ was a key outlier among major global central banks in keeping interest rates ultra-low while most of its peers raised them sharply over the past year.

This notion, coupled with some resilience in the Japanese economy, kept the Nikkei 225 trading in sight of 33-year highs. The index was also among the best performers in Asia in 2023, and was headed for a 27% gain this year.

Broader Asian markets moved little as the year-end holidays kept trading muted. South Korea’s KOSPI was flat, while futures for India’s Nifty 50 index pointed to a muted open.

Chinese stocks extend losses as economic jitters persist

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes fell 0.9% and 0.7%, respectively, on Tuesday. The two indexes extended recent losses, with the bluechip CSI 300 hitting a near five-year low.

Chinese stocks were the worst performers in Asia this year, with the CSI300 and SSEC down 14% and 6%, respectively.

A post-COVID recovery in China’s economy largely failed to materialize this year, while Beijing’s reluctance to roll out policy support also saw investors turn largely sour on local markets.

Focus is now on Chinese purchasing managers index readings, due next week, for more cues on business activity in the country. Official readings for November showed manufacturing activity in contraction, while non-manufacturing activity slowed.

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