Asia-Pacific Markets Mixed as Investors Weigh Trump Presidency and Central Bank Decisions
On Thursday, Asia-Pacific equity markets showed mixed performances as investors responded to the implications of Donald Trump’s potential presidency while anticipating critical monetary policy announcements from the U.S. Federal Reserve and other central banks later in the day.
Although expectations of increased U.S. fiscal spending under a Trump administration had driven major U.S. indexes to record highs, Asian markets remained more cautious, showing a blend of upward and downward movements.
The possibility of a Republican-led government ramping up fiscal spending led to a spike in U.S. Treasury yields, with the 10-year yield hovering near a four-month peak at 4.4236%. Concerns over rising deficits contributed to a sharp increase in the dollar, which posted its largest one-day gain in over two years against other major currencies.
The strong dollar placed pressure on global currencies, especially the euro, which also faced headwinds from political instability in Germany. German Chancellor Olaf Scholz’s unexpected decision to dismiss Finance Minister Christian Lindner led to the collapse of the ruling coalition, further weighing on the euro.
In Asia, Japanese stocks reflected the market’s mixed sentiment. The tech-heavy Nikkei 225 initially gained but reversed course, falling 0.44% to 39,308.55 as of 0217 GMT. Meanwhile, Japan’s broader Topix index remained in positive territory, up 0.88%, buoyed by the performance of Japanese banks and insurers benefiting from elevated bond yields. However, tech stocks and growth-oriented shares struggled due to these high yields.
“In this highly volatile period, you have to be very selective in Japan,” noted Frank Benzimra, head of Asia equity strategy at Societe Generale, adding that the Nikkei seems “overextended” at current levels.
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Elsewhere, South Korea’s Kospi edged down 0.14%, and Australia’s benchmark ASX 200 declined 0.24%, impacted by weak gold stocks. Gold prices had tumbled against a strengthening dollar, reflecting an ongoing market shift toward U.S. assets as a safer haven.
Chinese markets, which faced losses earlier due to the potential for heightened U.S. tariffs under a Trump presidency, rebounded on Thursday. Hong Kong’s Hang Seng index rose 0.49%, while mainland blue-chip stocks on the CSI300 gained 0.14%.
Investors are looking to the ongoing National People’s Congress Standing Committee meeting, which concludes on Friday, for potential stimulus announcements aimed at bolstering China’s economic outlook.
China’s trade data, released Thursday, showed a significant uptick in exports, marking the fastest growth in over two years as manufacturers raced to ship goods to major markets ahead of possible U.S. and EU tariff increases. This data provided a positive backdrop for Chinese stocks, but concerns over a trade war under Trump continue to loom.
In Europe, investor sentiment was weighed down by Germany’s political upheaval, following Chancellor Scholz’s decision to remove his finance minister and subsequent collapse of the coalition government. Scholz is now working to secure support from the opposition Conservative Party to pass the budget and increase defense spending.
With German DAX futures inching up 0.1% after a sharp decline the previous day, European markets appeared cautious. The Pan-European STOXX 50 futures, however, slipped by 0.04%, reflecting lingering uncertainty.
The dollar index, which measures the U.S. currency against the euro and other major peers, remained stable at 105.04 after a substantial rally. The euro held at $1.0733, recovering slightly from its steepest one-day loss since March 2020. Similarly, the yen saw minor adjustments, with the dollar-yen pair trading at 154.36 following a notable rally the day before.
With the Fed anticipated to cut rates by 25 basis points, markets are debating whether this will set the stage for further rate cuts in December.
Trump’s potential trade policies, including tariffs and tighter immigration, could drive inflation, slowing the Fed’s ability to ease monetary policy as much as previously hoped. “The market appears to be thinking about inflation right now,” said Justin Onuekwusi, chief investment officer at St. James’s Place.
The Bank of England is also expected to cut interest rates by a quarter point, only its second reduction since 2020, as it contends with inflationary pressures from the government’s new budget. Similarly, Sweden’s Riksbank is predicted to implement a half-point rate cut, while Norway’s central bank is likely to maintain current policy settings.
Bitcoin, which hit a record high of $76,499.99 overnight, pulled back slightly on Thursday, down 1% at $75,200. Trump’s favorable stance on cryptocurrencies has been a potential tailwind for digital assets, yet the market remains volatile amid broader financial shifts.
Gold prices extended their decline, edging down to $2,657.58 after a 3% drop on Wednesday. Despite the dip, gold remains close to its recent peak of $2,790.15, as it remains a preferred safe-haven asset during times of uncertainty.
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Crude oil, pressured by dollar strength on Wednesday, recovered some ground as concerns over supply disruptions under a Trump administration and an impending hurricane in the Gulf Coast supported prices. Brent crude oil futures rose by 0.35% to $75.18 per barrel, while U.S. West Texas Intermediate (WTI) crude edged up 0.22% to $71.85.
With central bank decisions, potential tariffs, and fluctuating geopolitical tensions on the horizon, global markets remain on high alert. Investors will continue to monitor signals from the Fed, Bank of England, and other major central banks for clues about the future trajectory of interest rates. Meanwhile, Trump’s potential impact on trade and fiscal policies presents an added layer of complexity that investors must weigh carefully.
The Asia-Pacific markets’ mixed performance underlines the fragile balance that investors are attempting to strike between growth opportunities and the looming specter of economic and political uncertainty. As the year unfolds, market participants will need to stay nimble and strategic in navigating this complex landscape.
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