Asian stocks inched up on Tuesday, and the dollar hovered near a five-month low as the United States inflation eased, raising expectations that the Federal Reserve would slash interest rates in the early part of the year. Oil prices were a mixed bag after climbing 3 percent the previous week due to Houthi attacks on ships that disrupted global shipping and trade amid the Israel-Gaza conflict. Trading was light on the day after Christmas, with several markets closed for Boxing Day and limited activity expected for the rest of the holiday-shortened week.
The MSCI’s broadest index of Asia-Pacific shares outside Japan inched up by 0.1 percent, after falling 0.7 percent on Monday. Meanwhile, Japan’s Nikkei added 0.4 percent, taking inspiration from a weaker yen. They markets were given an additional lift when they received positive cues from Wall Street’s record highs on Monday.
The dollar index stood at 96.611, not far from the five-month low of 96.355 it touched earlier in the week. It saw a drop of 0.1 percent against the safe-haven yen, which stood at 110.49 to the dollar. The euro rose 0.1 percent to $1.1393, edging closer to a five-month high of $1.1485.
Concerns about slowing global economic growth and its impact on earnings have prompted investors to take their bets off the Fed raising interest rates anytime soon. The prospect of smaller rate hikes has dented the dollar’s appeal. Moreover, Treasury yields fell, with the 10-year yield last at 2.718 percent.
A robust labor market, strong consumer and business sentiment, and early signs of improvement in the housing market have been overshadowed by other factors. These include trade tensions and financial market volatility, which cloud the U.S. economic outlook. The policymakers are closely watching these factors for market expectations, market quotes and other considerations, as indicated by recent Fed comments.
The markets also took note of the cooling in U.S. inflation. The personal consumption expenditures (PCE) price index, excluding food and energy, climbed 1.9 percent in the 12 months through November, below the Fed’s 2 percent target. The inflation relief also aided regional currencies, which gained against the dollar. The South Korean won led gains and rose 0.2 percent, while the Indonesian rupiah, Malaysian ringgit, and the Indian rupee all firmed higher.
Oil prices were mixed following the 3 percent gain last week. Brent crude futures added 0.3 percent to $53.10 per barrel, while U.S. West Texas Intermediate crude futures shed 0.5 percent to $44.82 per barrel. They both climbed about 3 percent last week, supported by the geopolitical tensions. Both crude benchmarks lost around 40 percent in the fourth quarter. Trading remained thin with several markets including Australia, Hong Kong, Britain, and Germany closed for the Boxing Day holiday. The holiday-shortened week was widely expected to see limited moves in the markets.
