General Trend:
The FOMC minutes from overnight appeared somewhat hawkish, lacking significant discussions on future rate cuts, contrary to Chair Powell’s earlier indications.
Asian equities faced declines as bond yields rose, prompting reevaluation of expectations for the number of US rate cuts this year, especially with the US 10-year yield testing 4.0%.
Japan’s Nikkei share average dropped over 1% on the first trading day of 2024. Airlines, construction, and energy sectors reacted to the recent aircraft collision at Haneda Airport and the earthquake in Ishikawa on January 1st. Chip-related stocks, including Advantest (6857.JP) and Tokyo Electron (8035.JP), also fell nearly -5%.
The Ishikawa earthquake in Japan raises questions about potential delays in BOJ tightening, with BOJ Gov Ueda and PM Kishida mentioning the earthquake in their remarks.
Japan’s TOPIX Marine Index surged 7% amid heightened Red Sea tensions, with Nippon Yusen up 7.5%, OSK Lines rising 7%, and Kawasaki Kisen gaining 7.7%, following Danish shipper Maersk’s decision to halt all Red Sea operations.
WTI Crude Oil recorded a 3.5% increase overnight, leading Australian energy stocks to hit near two-month highs.
China’s Caixin Services PMI and Composite beat estimates, highlighting expansion in both supply and demand. External demand continued its upward trajectory for the fourth consecutive month, reaching its highest level since June 2022.
Market Analysis:
The release of FOMC minutes overnight set a slightly hawkish tone, with no substantial discussions on future rate cuts as previously suggested by Chair Powell. This development prompted a shift in sentiment, leading to losses in Asian equities as bond yields rose, particularly with the US 10-year yield reaching 4.0%.
Japan’s Nikkei share average faced a 1% decline on the first trading day of 2024, influenced by the aftermath of the aircraft collision at Haneda Airport and the recent earthquake in Ishikawa. Chip-related stocks experienced notable drops, contributing to the overall downturn.
The Ishikawa earthquake has raised concerns about potential delays in the BOJ’s tightening plans, with both BOJ Gov Ueda and PM Kishida addressing the earthquake’s impact in their statements.
In contrast, Japan’s TOPIX Marine Index surged 7% on the backdrop of escalating tensions in the Red Sea. Shipping companies, including Nippon Yusen, OSK Lines, and Kawasaki Kisen, recorded significant gains following Maersk’s decision to pause Red Sea operations.
The global oil market witnessed a 3.5% increase in WTI Crude Oil prices overnight, driving Australian energy stocks to nearly two-month highs.
China’s economic indicators provided a positive note, as the Caixin Services PMI and Composite exceeded expectations. Both supply and demand expanded, with external demand showing a consistent upward trajectory, reaching its highest level since June 2022.
As markets in Asia react to geopolitical tensions, earthquake aftermath, and global economic indicators, investors are keeping a close eye on the Red Sea developments, potential delays in central bank tightening, and the overall impact on various sectors. The coming days will likely bring further insights into how these factors shape market dynamics.
