On Tuesday, Asia is at the center of significant market developments, highlighted by an Australian interest rate decision, a surge in China's technology sector, and remarkable Japanese GDP figures. These events are unfolding amidst the ongoing geopolitical tensions involving U.S.-Europe relations and the Russia-Ukraine conflict.
The Reserve Bank of Australia is poised to make headlines with an anticipated quarter-point cut to its cash rate to 4.10%, marking its first reduction in over four years.
The easing inflation paves the way for a rate-cutting cycle, albeit a modest one. Money markets anticipate only 50 basis points of further easing this year following Tuesday's move.
If the RBA reduces rates on Tuesday, it will be among the last G10 central banks to do so. Norway's central bank has yet to start easing, while the Bank of Japan is in the process of raising rates.
The yen and Japanese Government Bond yields are climbing. Recent inflation and wage growth data have exceeded expectations, yet the Bank of Japan remains cautious about raising rates after decades of deflation and ultra-loose policy.
Two-year and 10-year JGB yields have reached their highest since 2008, rising sharply in recent months, roughly doubling since September. These significant moves will have a yet-to-be-seen impact on businesses, households, and investors.
Chinese markets continue their rebound, with tech shares in Hong Kong reaching a three-year high on Monday as President Xi Jinping met with top tech leaders in Beijing. The Hang Seng tech index has surged over 30% in a month.
Xi's uncommon meeting with technology leaders serves as a potent symbol, underscoring policymakers' concerns regarding the economy and China's technological progress. This marks a notable departure from the regulatory crackdown on the tech sector that occurred four years ago.
These market movements, each significant in their own right, occur amid seismic geopolitical developments concerning America's relations with Europe and President Donald Trump's role in negotiating a truce between Ukraine and Russia with Russian President Vladimir Putin.
A peace agreement, characterized by Danske Bank as a 'compromised deal that distinctly benefits Russia,' might enhance risk appetite, affecting the dollar and oil markets in the short term. Nonetheless, the wider ramifications of a possible disruption in the 80-year robust U.S.-European relations since World War II could increase risk premiums across markets over the long term.
Key developments that could guide Asian markets on Tuesday include:
- Australian interest rate decision
- Singapore budget (fiscal year 2025)
- Hong Kong unemployment (January)
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