Asian markets appear set for a rally on Monday, tracking sharp gains on Wall Street on Friday amid signs the U.S. Federal Reserve may pause interest rate hikes and as U.S. jobs data came in strong.
“Risk sentiment is on more stable footing than we opened 2019,” Stephen Innes, head of Asia Pacific trading at OANDA, said in a note on Monday, pointing to upcoming U.S.-China trade talks and increased chances the Fed may pause as market-friendly developments.
“However, some investors remain skeptical that Friday’s [stock] price action was little more than a vicious short covering frenzy after their portfolios were beaten to a pulp during the past 90 days,” he said, but added the softer Fed and robust U.S. jobs data could provide a stabilizer to sentiment.
Fed chief Jerome Powell said on Friday that the central bank would be patient as it evaluated potential risks of an economic slowdown, a message that drove Wall Street optimism.
Another driver of sharp gains in U.S. stocks on Friday came from the U.S. nonfarm payrolls report for December, which showed a 312,000 rise.
China eases policy
In a move that markets had been expecting, China on Friday cut its reserve requirement ratio (RRR), or the level of reserves banks must hold, for the fifth time in the past 12 months as Beijing aims to boost sagging economic growth. Cutting the RRR frees up liquidity for banks to increase lending.
The size of the cut — 100 basis points over two stages — from the current levels of 14.5 percent for large institutions and 12.5 percent for smaller ones were at the upper end of market forecasts, Reuters said.
But analysts aren’t optimistic the move would kickstart China’s economy.
“The 100bp RRR cut will be helpful, but is not a game-changer,” Nomura said in a note on Saturday. Simply injecting liquidity isn’t enough, it said. “Beijing needs to encourage governments, state-owned enterprises (SOEs), the private sector and households to spend money,” especially on infrastructure and property, it added.
But the investment bank wasn’t hopeful because of a dearth of high-quality infrastructure projects in the near term.
Other analysts were also downbeat.
“No one should be expecting a rapid improvement in the economy,” Mark Williams, chief Asia economist at Capital Economics, said in a note on Friday.
“Given the downward pressures the economy is facing, we’re expecting stimulus only to arrest the slowdown in growth, probably around the middle of the year, but not to drive a significant rebound,” Williams said.
Japan’s Nikkei 225 index was up 3.50 percent at 8:20 A.M. SGT, while South Korea’s Kospi was up 1.76 percent at 8:26 A.M. SGT.
Singapore’s Straits Times Index ended Friday up 1.54 percent at 3059.23; January futures for the index were at 3060 on Friday, while February and March futures were at 3063 and 3060 respectively.
Hong Kong’s Hang Seng Index ended Friday up 2.24 percent at 25,626.029, while China’s CSI 300 was up 2.40 percent at 3035.874.
Malaysia’s KLCI was down 0.36 percent at 1669.78 on Friday, while Indonesia’s IDX Composite was up 0.86 percent at 6274.54.
The Dow Jones Industrial Average jumped 3.29 percent to 23,433.16 on Friday, the Nasdaq Composite climbed 4.26 percent at 6738.857, and the S&P 500 gained 3.43 percent to 2531.94. Futures for the three indexes were higher in early trade.
Nymex WTI crude oil futures for February were up 1.33 percent at US$48.60 a barrel at 8:00 A.M. SGT, while ICE Brent crude oil futures for March were up 1.30 percent at US$57.80 a barrel at 8:00 A.M. SGT, according to Bloomberg data.
This article has been updated since it was originally published on Monday, 7 January 2019 at 8:44 A.M. SGT.