Asia stocks lag Nikkei’s ascent; China skips rate cut

SYDNEY — Asian shares got off to a stumbling start on Monday as China’s central bank wrong footed markets by skipping on a rate cut, even as data due this week is expected to show the economic recovery there remains fragile.

China reports economic growth data for the fourth quarter and a slew of monthly figures on Wednesday, and investors have become used to being underwhelmed by activity as Beijing drip feeds its stimulus.

Chinese blue chips were little changed in response, having earlier reached their lowest since early 2019.

A holiday in the United States also made for thin trading, but at least there was progress on averting an imminent government shutdown as congressional leaders agreed on another stopgap spending bill.

Japan’s Nikkei bucked the chary mood and climbed to a fresh 34-year peak, having already enjoyed stellar gains of 6.6% last week. They closed up 0.91%.

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.21%, after losing 0.8% last week.

S&P 500 futures and Nasdaq futures were both flat. EUROSTOXX 50 futures added 0.4% and FTSE futures 0.2%.

Earnings season rolls on, with Goldman Sachs and Morgan Stanley among those reporting. Retail sales is the main US data of the week, while the Iowa caucus will be run in frigid weather later on Monday.

There was limited reaction to the victory of the ruling Democratic Progressive Party in Taiwan, which essentially left the status-quo intact and Beijing displeased.

The tensions with China were a reminder that geopolitics will loom over markets this year, with elections across the globe and the threat of a wider conflict in the Middle East.

Futures imply a 75% probability the US Federal Reserve will cut as soon as March, with soft producer price data offsetting a disappointing consumer price report.

Analysts at Barclays noted the Fed’s favored core personal consumption price index looked set to undershoot the CPI.

“Core PCE continuing to run at or below 0.2% m/m is softer than we had expected, with little indication of firming in the near term,” said Barclays economist Christian Keller.

He also suspected Fed Governor Christopher Waller could open the door to an easing at a speech on Tuesday.

The Davos World Economic Forum runs to Friday and is notably packed with European Central Bank (ECB) speakers, including President Christine Lagarde.

Over the weekend, ECB chief economist Philip Lane said there would have been enough data by June to decide on the first of a likely series of interest rate cuts.

Markets are fully priced for an easing in April and imply a whopping 154 basis points of cuts over 2024.

That dovish outlook has limited the euro’s gains on the dollar and it was idling at $1.0956 on Monday, having barely budged last week. —