Asian stocks showed a lack of direction at the start of the week, with traders navigating escalating tensions between the US and the European Union, as well as anticipating key central bank policy decisions.
In Australia, stocks dipped, while Japan saw a volatile session, fluctuating between gains and losses. Futures in Hong Kong pointed to an early decline. The US dollar remained largely unchanged, and Treasury futures dropped, with cash trading halted globally due to Presidents’ Day in the US.
The cautious market sentiment comes amid growing tensions between the US and Europe, ignited by President Donald Trump’s tariff plans, which have triggered retaliatory threats. Over the weekend, Vice President JD Vance criticized longstanding European allies during a security conference, and stalled negotiations to end the war in Ukraine have left Europe on the sidelines. As a result, German and French bond futures took a hit.
Marc Chandler, chief market strategist at Bannockburn Global Forex, noted that the unpredictable nature of the US administration leaves short-term market participants with little conviction. He compared the current situation to the Suez Crisis of 1956, when US interests starkly diverged from the UK and France.
Investors are also turning their attention to China’s stock market, following a 2.3% rise in US-listed Chinese shares on Friday, fueled by enthusiasm over artificial intelligence. A potential meeting between Chinese President Xi Jinping and e-commerce mogul Jack Ma later this week could provide further momentum to the rally in China’s equities.
Meanwhile, Michael Burry, known for his bets against the market, reduced some of his positions in Chinese tech stocks before a massive $1.3 trillion rally sparked by advances in artificial intelligence. Goldman Sachs raised its targets for Chinese equity benchmarks in response.
Several important policy decisions are expected this week, with central banks from Wellington to London taking action. The Reserve Bank of Australia (RBA) is expected to begin its long-awaited interest rate cut cycle on Tuesday, as inflation has shown signs of easing. On Wednesday, New Zealand’s central bank is likely to continue its rapid monetary easing in an effort to support a sluggish economy.
Societe Generale economists, including Wei Yao, anticipate that the RBA will begin its easing cycle due to the recent decline in inflation.
In corporate news, Westpac Banking Corp. saw its shares drop by as much as 6% after reporting a decline in profit and margins. Meanwhile, Japan’s economy continued its growth for the third consecutive quarter, driven by increased investment from companies and improved net exports.
This week will also bring important inflation data from Japan, the UK, and Canada, as well as jobs data from Australia. In China, banks are expected to maintain their loan prime rates, following a surprising jump in credit expansion for January, although overall credit growth remains historically weak.
In commodities, oil extended its losses for a fourth consecutive day, driven by concerns of oversupply and the potential impact of Trump’s tariffs on demand. US threats to Iranian crude exports failed to offset these concerns. Gold prices remained steady amid the uncertainty.
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