Asian Stocks Dip on Rate Cut Doubts, Inflation Data Looms

On Monday, Asian stocks slid after a surge in US nonfarm payrolls had markets reconsider their view on early interest rate cuts this year, while key inflation data releases are in focus this week.

Wall Street shares led regional stocks lower following better-than-anticipated nonfarm payrolls data in December, reducing bets on a March 2024 rate cut from the Federal Reserve. The upcoming fourth-quarter earnings season also added to traders’ anxiety.

US stock futures were steady at the start of the week in the Asian trading session.

Regional trading volumes were muted due to a Japanese market holiday, with the Nikkei 225 Futures slightly down by 0.21% at ¥33,343.00. Tokyo’s inflation data for December is set to be published on Tuesday.

Additionally, a destructive earthquake in central Japan dampened confidence in Japanese markets. Expenses and rebuilding plans are anticipated to postpone further the Bank of Japan’s (BOJ) monetary policy tightening.

Broader Asian indices traded in a tight range, with Australia’s ASX 200 dipping modestly by 0.50% to AU$ 7,451.50 ahead of upcoming inflation, trade, and retail sales data this week.

China’s CSI 300 index slipped 1.17% to CN¥3,290.09, and SSEC fell 1.19% to CN¥2,894.19, extending their 2024 losses amid persistently weak sentiment for the country.

Looming inflation and trade data will likely show China’s ongoing economic weakness after disappointing purchasing managers’ index (PMI) readings last month.

Hong Kong’s Hang Seng index significantly eased by 2.04% to HK$16,161.00, with mainland stocks being significant weight.

South Korea’s KOSPI slightly dipped by 0.21% to ₩2,572.62 ahead of the Bank of Korea’s (BOK) interest rate decision this week.

India’s Nifty 50 index declined by 0.55% to ₹21,592.25, with inflation data from the country also due.

Inflation Test In Sight for Markets

This week will center on Thursday’s release of December’s US consumer price index (CPI) data on top of the upcoming inflation readings from various Asian economies.

The world’s largest economy is expected to see a minor increase in inflation, keeping the CPI index above the Fed’s annual 2% target. A boost in the US’s month-on-month (MoM) inflation is also anticipated.

The inflation data came a week after nonfarm payrolls indicated a modest slowdown in the labor market. Analysts saw the reading as a diminishing factor in the central bank’s urgency to begin policy easing, while rate cuts may only start in May.

According to the CME FedWatch tool, traders are now pricing in a 63% chance of a 25-basis point rate cut in March, lower than the 73.4% probability logged last week.