Global Markets Open Mixed as Trading Week Begins
European markets opened lower on Monday, while Asian markets were mostly higher as the week got off to a mixed start. With U.S. markets closed for Martin Luther King Day, trading activity was relatively subdued.
In Europe, France's CAC 40 lost 0.1% to 7,454.74, Germany's DAX slipped 0.1% to 16,688.90, and Britain's FTSE 100 shed 0.2% to 7,619.80. Meanwhile, futures for the S&P 500 gained 0.1%, while those for the Dow Jones Industrial Average were virtually unchanged.
For market observers, a surprising move came from China's central bank, which decided to keep its one-year policy loan interest rate at 2.5% on Monday. This caught many off guard as it went against the anticipated trend of lowering borrowing costs to stimulate the economy. Analysts now believe that the focus has shifted to the effectiveness of monetary policy, with the likelihood of a reserve ratio requirement (RRR) cut in February increasing.
In Hong Kong, the Hang Seng lost 0.2% to 16,216.33, while the Shanghai Composite index was up 0.2% at 2,886.29. Search engine provider Baidu experienced a significant slump of 11.5% after a local newspaper report alleged that its Ernie AI platform was connected to Chinese military research into artificial intelligence. Baidu, in response, stated that it had no affiliation or partnership with the academic institution in question.
In Japan, the Nikkei 225 briefly surpassed the 36,000 mark for the first time in 34 years on Monday but ended the day slightly lower, with a gain of 0.9% to close at 35,901.79. South Korea's Kospi was nearly flat at 2,525.99. Meanwhile, in Taiwan, ruling-party candidate Lai Ching-te emerged as the victor in the presidential election. This result will have a significant impact on the country's relationship with China over the next four years, as the Democratic Progressive Party, to which Lai belongs, has consistently rejected China's claims of sovereignty over Taiwan. Taiwan's Taiex gained 0.2% to 17,546.82.
Australia's S&P/ASX 200 remained virtually unchanged at 7,496.30.
Last week, U.S. markets showed a mixed performance. The S&P 500 edged up by 0.1%, while the Dow Jones Industrial Average fell 0.3% due to a sharp loss for UnitedHealth Group following its earnings report. The Nasdaq was essentially flat, gaining less than 0.1%.
The recent surge in stocks toward record highs has been fueled by hopes that inflation is cooling enough for the Federal Reserve to cut interest rates multiple times this year. Consequently, treasury yields have declined as investors anticipate rate cuts. The fall in yields was further reinforced by a report showing weaker-than-expected inflation at the U.S. wholesale level compared to economists' forecasts. In October, yields were above 5%, their highest level since 2007. Lower rates and yields help alleviate economic and financial pressures while boosting investment prices.
Traders currently anticipate that the Federal Reserve will cut its main interest rate six or more times by 2024. This projected path is more aggressive than what the central bank itself has hinted at, as it has cautioned the possibility of raising rates further if inflation fails to meet its target of 2%. The federal funds rate is already at its highest level since 2001.
In the commodities market, benchmark U.S. crude oil lost 33 cents to settle at $72.35 per barrel. Brent crude, the international standard, gave up 30 cents to reach $77.99 per barrel.
In foreign exchange markets, the U.S. dollar rose to 145.50 Japanese yen, up from 144.92, while the euro increased slightly to $1.0955 from $1.0950.
As the trading week begins, investors will keep a close eye on any developments in monetary policy and geopolitical tensions, which could significantly impact global markets.
