The Asian stock markets are showing signs of strength in morning trading on Monday (23/12/2024). Stocks in the Asian markets are gaining ground after improved inflation data in the United States (US) raised hopes for further policy easing next year, while there is relief that Washington has averted a government shutdown.
Monthly inflation in the US slowed in November after showing slight improvement in the past few months. The Personal Consumption Expenditures (PCE) index, a preferred inflation measure by The Fed, only increased by 0.1% from October. This measure shows a 2.4% annual inflation rate, still above The Fed’s 2% target but lower than Dow Jones’ estimate of 2.5%. The monthly reading was also 0.1 percentage point below expectations.
Excluding food and energy, core PCE also increased by 0.1% monthly and was 2.8% higher than a year ago, with both readings also 0.1 percentage point below estimates. Fed officials generally consider core readings as a better measure of long-term inflation trends as they exclude volatile categories such as gas and food.
The annual core inflation figure remained the same as in October while the headline figure increased by 0.1 percentage point. These inflation figures reflect a slight increase in goods prices and a 0.2% increase in service prices. Food and energy prices also recorded a 0.2% increase. Over a 12-month period, goods prices fell by 0.4% but services rose by 3.8%. Food prices increased by 1.4% while energy prices fell by 4%.
Meanwhile, after a series of recent central bank decisions, this week is much quieter with only minutes from some of those meetings being released. There are no speeches from The Federal Reserve (The Fed) and no significant US data.
Additionally, the themes are largely the same, with the dollar supported by a relatively strong economy and higher bond yields, which in turn weigh on commodities and gold. This also poses a problem for emerging market countries, which have to intervene to prevent their currencies from falling too far and triggering domestic inflation.
For now, the remnants of the US inflation report are enough to lift the MSCI index for stocks in the Asia-Pacific region.
As for Fed funds futures, they strengthened, implying a 53% chance of a rate cut in March and a 62% chance in May, although they only have two quarter-point cuts to 3.75-4.0% expected throughout 2025. A few months ago, the market expected interest rates to bottom out around 3.0%.
In conclusion, the Asian stock markets are responding positively to improved US inflation data and the avoidance of a government shutdown in Washington. The outlook for further policy easing next year is also contributing to the positive sentiment in the markets.
This article was researched and written by CNBC Indonesia Research. For more information, you can contact them at [email protected].
(Source: CNBC Indonesia)
