Asian stocks trimmed early gains on Friday as investors proceeded with caution, shifting their attentions toward anticipated stimulus announcements from China later in the day, coinciding with the near conclusion of Beijing’s extensive week-long legislative meeting.
Regional equities initiated the day on a positive note, mirroring Wall Street’s overnight surge to record highs while investors absorbed the Federal Reserve’s careful stance on potential interest rate cuts. This cautious optimism came even as expectations grew for substantial fiscal spending under the incoming President Donald Trump.
A notable decline in U.S. Treasury yields continued to pressure the dollar, which experienced its sharpest drop against major currencies in over six weeks on Thursday.
As of 0552 GMT, an MSCI gauge of Asia-Pacific stocks reflected a modest increase of 0.33%, although it had previously risen by as much as 0.78% earlier in the trading session.
The index is poised for a strong weekly performance, tracking a 2.7% rally after a quick rebound from an initial dip following the U.S. election results, which had initially triggered fears about potentially severe trade tariffs, particularly concerning China.
Support for Chinese stocks remained robust throughout the week, bolstered by optimism surrounding a potential stimulus response from Beijing. In particular, mainland blue-chip stocks witnessed a 3% gain on Thursday. However, these stocks reversed their gains and were last down 0.5%, having previously risen as much as 1.3%. Meanwhile, Hong Kong’s Hang Seng index declined by 0.6%. The National People’s Congress Standing Committee meeting, which concludes on Friday, is expected to feature a briefing from officials. Sources have indicated to Reuters that in the event of a second Trump presidency, increased Chinese fiscal spending could be proposed.
However, DBS’s China economist Tao Wang expressed skepticism regarding the likelihood of a comprehensive stimulus package being announced during the briefing. He noted that Chinese leadership required additional time to evaluate potential timing and impacts of U.S. policy changes on the nation, as mentioned in a client note.
DBS’s China equity strategist James Wang pointed out that Chinese stocks appear “skewed to the downside in the near term,” noting that the market has yet to fully factor in a 60% tariff implication, according to the report.
Japan’s Nikkei index advanced by 0.6%, marking an overall increase of 4.1% for the week.
Australia’s stock benchmark exhibited a rise of 0.8%, while Taiwan’s benchmark registered a 0.6% gain. However, South Korea’s Kospi experienced a slight downturn, slipping by 0.2%.
Futures for both Britain’s FTSE and Germany’s DAX showed an uptick of approximately 0.2% each. The FTSE index had declined 0.32% on Thursday in response to indications from the Bank of England regarding the looming risk of higher inflation.
Globally, stocks—led by Wall Street—are poised for a 3.3% weekly increase while reaching new record heights.
Trump’s return to the White House after Tuesday’s election, with Republicans regaining control of the Senate and potentially expanding their House majority—although votes are still being counted—defied pre-election polls that indicated a tightly contested race against Democrat Kamala Harris.
Investor expectations surged that Trump would fulfill promises regarding corporate tax reductions and deregulation, propelling all three major Wall Street indexes to achieve record highs on Wednesday. The S&P 500 and Nasdaq extended these gains on Thursday, with Fed Chair Jerome Powell hinting at a continued, patient approach to policy easing. The Dow Jones Industrial Average closed flat.
Powell stated that the recent election outcome, which brings a president to the White House who has committed to sweeping immigration deportations, broad tariffs, and tax reductions, would have no immediate impact on U.S. monetary policy.
U.S. two-year Treasury yields, closely tied to monetary policy projections, edged down to 4.2016% on Friday, in contrast to a three-month peak of 4.3120% recorded on Wednesday.
Following a 0.7% drop on Thursday—its largest downturn since August 23—the dollar index, which evaluates the U.S. currency against six major counterparts, slightly increased to 104.53. Prior to this, it soared 1.53% on Wednesday, marking the largest gain in over two years.
“Markets have already passed the ‘honeymoon period’ for the president-elect, and USD and U.S. rates now enter a ‘window period’ where the policy outlook is considered,” remarked Shoki Omori, chief Japan desk strategist at Mizuho Securities.
Market participants will need to stay vigilant as they anticipate potentially impactful posts on social media from Trump, with a focus on whether the president-elect and his administration will advocate for more fiscal issuance in the upcoming year, Omori stated.
Bitcoin remained stable around $76,000, having experienced a nearly 10% rise this week, reaching a historic peak of $76,980 on Thursday. Trump has pledged to transform the United States into “the crypto capital of the planet.”
Gold struggled to gain further ground following its tumultuous week, retracting 0.6% to $2,691 in the latest session. The precious metal experienced a significant drop of over 3% on Wednesday, only to bounce back with a 1.8% increase overnight. Last week, gold skyrocketed to a record high of $2,790.15.
Oil prices experienced a decline on Friday, following a roughly 1% increase in the previous session, as the market weighed the potential effects of Trump’s policies on supply, coupled with efforts by drillers to curtail output in anticipation of Hurricane Rafael.
Brent crude oil futures were last observed down 0.53%, trading at $75.23 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 0.65% to $71.89.
**Interviewer:** Thank you for joining us today, Tao Wang, the China economist at DBS. There’s a lot of movement in Asian markets as we approach the conclusion of Beijing’s week-long legislative meeting. Can you share your insights on today’s market activity and the anticipated stimulus package from China?
**Tao Wang:** Thank you for having me. Yes, Asian markets began positively today, largely influenced by the recent surge in Wall Street and the anticipation of potential stimulus from the Chinese government. However, it’s important to note that while there is optimism, we should be cautious. I personally believe that a comprehensive stimulus announcement today is unlikely.
**Interviewer:** That’s interesting. Why do you think the Chinese leadership might hold back on a significant stimulus response?
**Tao Wang:** The Chinese government is likely taking its time to evaluate the potential impacts of U.S. policies under a second Trump administration. There’s a need to assess how these changes may affect China’s economy before making any large commitments.
**Interviewer:** That makes sense. We’ve seen some support for Chinese stocks this week, especially with blue-chip stocks experiencing gains. Do you think this trend will continue?
**Tao Wang:** It’s difficult to say. While we did see a robust performance earlier in the week, my colleague James Wang noted that the Chinese market may be leaning toward downside risks in the near term. There are still uncertainties in the market, particularly with the looming threat of tariffs which haven’t been fully priced in yet.
**Interviewer:** Speaking of tariffs, how do you think Trump’s return to the White House will influence trade relations with China?
**Tao Wang:** Trump’s presidency is expected to bring more aggressive trade strategies, including potential tariff increases. This creates a more complex environment for Chinese businesses and could hinder investor sentiment if the tariffs reach levels that significantly impact trade volumes.
**Interviewer:** Looking at the overall regional indices, Japan and Australia are showing gains, while South Korea’s Kospi slipped slightly. What do these trends indicate for investor confidence in Asia?
**Tao Wang:** The mixed results highlight the divergence in investor sentiment across the region. While some markets like Japan and Australia are responding positively, South Korea’s decline suggests that investors remain cautious. This indicates that while there may be optimism in sectors directly benefiting from potential stimulus, there are underlying concerns about geopolitical tensions and trade conditions that could lead to volatility.
**Interviewer:** Thanks for sharing your insights today, Tao. It sounds like the next few weeks could be quite pivotal as markets react to economic policies and potential fiscal measures.
**Tao Wang:** Yes, indeed. This is a critical time for not just China, but for the entire region as investors navigate these uncertainties. Thank you for having me.
