A preview of the day ahead in Asian markets.
An important week for global markets begins in Asia on Monday, as investors continue to navigate the blizzard of headlines surrounding US President Donald Trump’s likely economic agenda, while trying to gauge whether the “American exceptionalism” narrative is perhaps losing its luster.
The dollar fell 1.8% last week, its worst week since November 2023. If the greenback is consolidating, it’s not really a surprise: it reached its highest level in two years earlier this month and the net “long” position of hedge funds was the largest in nine years.
The dollar and US stocks have been closely correlated, supported by the huge wave of global capital inflows, with investors betting heavily on the US boom in artificial intelligence, technology, growth and returns.
But if the falling dollar is a sign that the flame of “American exceptionalism” is beginning to fade, is Wall Street also ready for a period of cooling?
The S&P 500 hit a new high last week and the Nasdaq came close. Index levels are historically high, valuations are tight and there is a risk of a major event looming this week in the form of the Fed policy meeting and Big Tech earnings.
Scrutiny of American technology is intensifying as fallout from a Chinese artificial intelligence startup, DeepSeek, spreads. DeepSeek recently launched a free, open-source AI model that it says is at least equal to more established models like ChatGPT in many ways, but built at a fraction of the cost.
It’s still early, but if this sheds a critical light on the colossal sums of money being spent on AI by US tech companies, Wall Street could falter.
Monday’s Asian calendar is dominated by China’s “official” manufacturing and services purchasing managers’ index reports for January.
-According to a Reuters poll, the manufacturing PMI is expected to remain unchanged from the previous month at 50.1. On the one hand, this would represent the fourth consecutive month of expansion in the sector. On the other hand, this would indicate almost zero growth for the second consecutive month.
Data on Friday showed that profits at China’s state-owned companies virtually evaporated last year, rising just 0.4% from the previous year. Profit figures for the broader industrial sector are due this week, possibly as early as Monday, and are expected to confirm that 2024 was the worst year in decades.
Investors will give their second-day verdict on Friday’s Bank of Japan rate hike. The initial view seemed to be that this was a “hawkish hike”, but Japanese money markets still only expect another 25 basis points of tightening this year, unchanged from pre-Friday levels . This suggests that the BOJ’s guidance was actually quite neutral, and Japanese stock futures are pointing to a sharp rise for Monday.
Meanwhile, South Korean markets will be sensitive to news that prosecutors on Sunday indicted President Yoon Suk Yeol for leading an insurrection during the short-lived imposition of martial law on Dec. 3.
Here are the main developments that could guide the markets on Friday:
– China’s “official” PMI (January)
– Japan Leading Indicator (November)
– Germany Ifo Index (January)
