Shares in Asia saw slight declines as trading remained subdued on Monday, ahead of a highly anticipated meeting between U.S. President Joe Biden and Chinese leader Xi Jinping. Tokyo was the only market to advance, while oil prices experienced a dip.
Meeting between Biden and Xi Fuels Hopes
The meeting, scheduled to take place on the sidelines of the Asia Pacific Economic Cooperation summit, has raised hopes for improved relations between the world’s two largest economies. It comes as Wall Street enjoys a robust November, with expectations for a December interest rate hike by the U.S. Federal Reserve, despite rising consumer inflation expectations.
Market Overview
Tokyo’s Nikkei 225 made a modest gain of 0.2%, while Hong Kong’s Hang Seng slipped 0.2%. The Shanghai Composite index and Seoul’s Kospi both dipped by 0.2% and 0.1% respectively. Australia’s S&P/ASX 200 declined 0.3%.
Wall Street’s Strong Performance
On Friday, Wall Street experienced significant gains, adding to an already strong month. The S&P 500 jumped 1.6% to reach 4,415.24, while the Dow gained 1.2% to close at 34,283.10. The Nasdaq saw a significant jump of 2%, reaching 13,798.11.
Tech Stocks Lead the Surge
The S&P 500’s rise was largely driven by the performance of major tech stocks, with Apple experiencing a 2.3% gain and Microsoft rising by 2.5%. This earnings reporting season has exceeded analysts’ expectations, projecting a year of growth in earnings per share for S&P 500 companies.
Focus on Future Outlook
While this positive trend is encouraging, investors are now turning their attention to how companies will perform in the coming months. With interest rates still high and the U.S. economy expected to slow, market participants are eager to see the strategies and plans that will be put in place by businesses.
Federal Reserve Seeks to Manage Expectations
The Federal Reserve has expressed the desire to keep expectations low, as high expectations could potentially lead to unsustainable inflation. The release of the University of Michigan report initially caused Treasury yields to fluctuate and stocks to waver. However, the stock market quickly rebounded and continued its ascent.
Market Speculation on Fed Interest Rates
Traders are now assigning only a 9.1% probability that the Federal Reserve will raise its main interest rate at its upcoming December meeting. This figure is notably down from the previous day’s estimate of 14.6% according to data from CME Group.
Higher interest rates and bond yields have negative implications for stock prices and other investments, while also slowing down the overall economy and increasing pressure on the financial system as a means to control inflation.
The S&P 500 recently experienced an eight-day winning streak, but this was interrupted after a surge in Treasury yields caused stock prices to decline. The Federal Reserve Chairman, Powell, contributed to this decline by dashing hopes that the central bank would stop raising interest rates.
Last month, the 10-year Treasury yield exceeded 5%, marking its highest level since 2007. This increase was attributed, in part, to expectations of significant borrowing by the U.S. government. As a result, the S&P 500 briefly dropped more than 10% below its year-high point. However, the market has since rebounded due to “year-end greed” as the 10-year yield has slightly regressed.
In the oil market, benchmark U.S. crude for December delivery lost 55 cents on Monday morning, settling at $76.62 per barrel. On Friday, it had risen by $1.43 to reach $77.17.
Similarly, Brent crude, the international standard, decreased by 60 cents to $80.83 per barrel, following a prior gain of $1.42 to $81.43 per barrel on Friday. Both types of crude experienced nearly a 4% loss last week due to concerns about supply surpassing demand.
Lastly, in currency trading, the dollar saw a marginal increase against the Japanese yen, rising from 151.47 yen to 151.66 yen.