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(Bloomberg) -- Asian stocks climbed after the Federal Reserve’s preferred inflation gauge came in below expectations, reigniting rate cut bets. The dollar steadied.
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The MSCI Asia Pacific Index snapped a six-day decline, with benchmarks in Japan and South Korea rising about 1%. Stocks in mainland China opened higher. US equity contracts gained after the S&P 500 Index advanced 1.1% on Friday, as personal consumption expenditures increased at the slowest pace since May.
Monday’s market moves offer investors some respite after a stream of robust US economic data saw the Fed scale back the number of cuts it anticipates in 2025. Overall mood remains cautious as investors look toward to Donald Trump’s inauguration and the prospect of sweeping global tariffs, adding to an already torrid time in Asia as sentiment toward Chinese assets sours.
“Lower than expected US core PCE inflation data for November suggests that the Fed may have gotten too negative on inflation,” Shane Oliver, head of investment strategy and chief economist at AMP Ltd., wrote in a note to clients. “Our overall assessment remains that the trend in shares is still up, including for Australian shares, but expect a far more volatile and constrained ride over the year ahead.”
Australia’s 10-year yield fell seven basis points on Monday, following a rally in US Treasuries after the PCE data on Friday. Treasuries were little changed in Asia trading.
A Bloomberg gauge of the dollar was steady after sliding 0.5% on Friday. President Joe Biden signed funding legislation to keep the US government operating until mid-March, avoiding a year-end shutdown and kicking future spending decisions into Donald Trump’s presidency.
Asian stocks are set for their first quarterly loss since September 2023 while a gauge of the region’s currencies fell to its lowest in more than two years last week. China’s one-year bond yield slumped below levels last seen in the global financial crisis on Friday, as traders ramped up bets on monetary easing.
“Recent weakening of Asia FX, in our view, is in large driven by the backup of the dollar, the significant shift of the China government stance for a moderately loose monetary stance” and a deterioration of the macro growth outlook, especially in South Korea, said Wee Khoon Chong, senior Asia Pacific market strategist at BNY in Singapore. “Asia currencies are cheap, but beware to catch the falling knife.”