SYDNEY- Asian shares rallied on Monday after a benign reading on US inflation restored some hope for further policy easing next year, while there was relief that Washington had averted a government shutdown.
After the bonanza of recent central bank decisions, this week is much quieter with only the minutes of a few of those meetings due. There are no Federal Reserve speeches and US data is of secondary importance.
Otherwise the themes were largely the same, with the dollar underpinned by a relatively strong economy and higher bond yields, which in turn is a burden for commodities and gold.
It is also a headache for emerging market countries, which are having to intervene to stop their currencies from falling too far and stoking domestic inflation.
For now, the afterglow from the US inflation report was enough to lift MSCI’s broadest index of Asia-Pacific shares outside Japan by 0.3 percent.
Japan’s Nikkei gained 1.2 percent, while the Topix automaker index climbed 1.3 percent helped by signs of progress in a potential merger between Honda and Nissan.
South Korean shares climbed 1.3 percent, while Taiwan’s market bounced 2.6 percent.
Chinese blue chips rose 0.7 percent, as 10-year bonds yields hit a fresh record low of 1.665 percent despite efforts by the central bank to stop the relentless decline.
EUROSTOXX 50 futures dipped 0.2 percent, while FTSE futures and DAX futures were near flat.
S&P 500 futures added 0.4 percent, while Nasdaq futures firmed 0.6 percent. The S&P 500 fell almost 2 percent last week and the Nasdaq 1.8 percent, though the latter is still up 30 percent for the year.
Analysts at BofA noted the S&P 500 was up 23 percent for the year, but if the 12 largest companies were excluded the gain was only 8 percent. They cautioned such extreme concentration was a vulnerability going into 2025.
Wall Street had rallied on Friday when a key gauge of core US inflation printed lower than expected at 0.11 percent, providing a partial antidote to the Fed’s hawkishness earlier in the week.
Fed funds futures swung to imply a 53 percent chance of a rate cut in March and 62 percent for May, though they only have two quarter-point easings to 3.75-4.0 percent priced in for all of 2025. A few months ago, the market had hoped rates would bottom around 3.0 percent.
