Asia market open: Investors eye bull run extension amid global monetary easing wave

Asia is set to launch the final comprehensive trading week of 2024 with the pivotal 'China data dump' on Monday, setting the stage for what promises to be a dynamic close to the year.

Investors, buoyed by a wave of global monetary easing, are keen to extend the equity bull run as central banks worldwide slash rates and China vows deeper economic stimuli.

Amid this backdrop of fervent market activity, geopolitical undercurrents add a layer of intrigue. South Korea is still reeling from political aftershocks following President Yoon Suk Yeol's dramatic impeachment over his sudden declaration of martial law. At the same time, this not wholly unexpected twist could add a touch of volatility to the South Korean won, although the market impact is expected to be subtle rather than seismic. Stepping into the fray is Han Duck-soo, a seasoned technocrat whose diplomatic finesse and comprehensive governmental experience are anticipated to stabilize the nation during these turbulent times.

Chinese equities face their own challenges. Last week’s vague promises from Beijing to invigorate consumer spending left investors wanting more, leading to a selloff in mainland stocks. Regulatory promises over the weekend to further shore up the property and equity sectors ahead of critical retail and industrial production data may provide some reassurance, but market sentiments remain tentative.

In Japan, the Bank of Japan (BOJ) is still in a gradual tightening monetary policy mode, diverging sharply from the global easing trend. Despite a robust 'Tankan' survey indicating promising business conditions, a rate hike seems unlikely as Japan navigates the competitive devaluation of neighbouring currencies, anticipating the incoming U.S. administration's tariff strategies.

The focus on the People's Bank of China (PBoC) intensifies as it navigates the yuan’s path against expected U.S. tariffs. Although initial reports suggested a potential devaluation to counteract tariffs, official statements have since moderated, aiming to prevent a precipitous drop and trigger capital outflows. Of course, it's a matter of time before the USDCNH trades + 7.35 as a weaker yuan. It merely reflects economic fundamentals and would aid in combating deflationary pressures, which are signalled by plunging 10-year Chinese bond yields.

As we edge closer to the 'America First' inauguration day, the chorus calling for a yuan devaluation might grow louder, signalling increasing market anticipation of significant shifts in U.S. trade policy. This crescendo of concerns could set the stage for a more pronounced move in the USDCNH as stakeholders adjust to the expected trade barrier directives from the new administration.

As the year wraps up, seasoned FX traders recalibrate, potentially unwinding positions to anticipate year-end flows favouring dollar selling. This strategic shift aligns with a historical uptick in EUR/USD amid this year's “ year-end FX rebalancing “ after U.S. equities' strong performance.

Finally, all eyes turn to the U.S. Federal Reserve, which is expected to trim rates at the year’s climactic FOMC meeting. Despite cooling inflation and sustained positive real rates, the economic landscape—with slowing job growth and emerging signs of the housing market cooling—argues for a cautious cut ahead of known unknowns around incoming President-elect Donald Trump’s tax and trade policies. Traders, bracing for a potentially hawkish tilt, are positioning for nuanced shifts in Fed policy as the year ends on a note of calculated optimism amid global uncertainties.