Asia-Pacific markets experienced a turbulent trading session on Thursday, as concerns over inflation and slowing growth in China weighed heavily on investor sentiment. The Federal Reserve’s December meeting minutes, which revealed ongoing inflation worries, added to uncertainty and tempered expectations of imminent rate cuts.
China’s CPI and PPI Data Stoke Deflation Fears
China’s December inflation data highlighted persistent disinflationary pressures in the world’s second-largest economy. The consumer price index (CPI) rose just 0.1% year-on-year, falling short of the 0.2% increase seen in November. Meanwhile, the producer price index (PPI) continued its prolonged decline, dropping 2.3% year-on-year, marking the 27th consecutive month of contraction.
Economists are forecasting weak inflation in 2025, with Barclays cutting its full-year CPI projection to 0.4%, citing insufficient demand-side stimulus, rising tariffs, and structural economic challenges. Falling food prices contributed to the subdued CPI, with pork prices dropping 2.1% month-on-month, alongside declines in fresh vegetable and fruit prices.
Asian Market Performance
The weak Chinese inflation data and broader concerns about global monetary policy weighed on Asia-Pacific markets:
- Hong Kong’s Hang Seng Index fell 0.13%, while mainland China’s CSI 300 lost 0.25%, closing at 3,779.88.
- Japan’s Nikkei 225 declined 0.94%, finishing at 39,605.09, with the Topix index shedding 1.23%.
- Australia’s S&P/ASX 200 dropped 0.24%, ending at 8,329.2.
- South Korea’s Kospi bucked the trend, rising 0.11% to 2,521.9, while the Kosdaq gained 0.54%.
Federal Reserve Minutes Add to Uncertainty
The Federal Reserve’s December meeting minutes showed officials increasingly concerned about inflation risks, with “almost all participants” indicating that these risks had risen. The minutes suggested the Fed might slow the pace of policy easing, dashing hopes for rapid rate cuts in 2025.
As a result, U.S. Treasury yields climbed, with the 10-year yield briefly exceeding 4.7%. Despite ongoing inflation concerns, U.S. markets posted modest gains on Wednesday:
- The S&P 500 added 0.16% to 5,918.25.
- The Dow Jones Industrial Average rose 0.25% to 42,635.20.
- The Nasdaq Composite was nearly flat, ending at 19,478.88.
Tencent’s Rebound and U.S. Trade Update
In corporate news, Tencent’s shares in Hong Kong rose 1.25% after the U.S. removed its flagship social media app, WeChat, from its “notorious markets” list. However, other Chinese e-commerce giants, including Alibaba and Tencent-backed PDD, remained on the list for allegedly facilitating the sale of counterfeit goods. Alibaba’s Hong Kong-listed shares dipped 0.2%.
Australia’s Trade Surplus and Sluggish Retail Sales
Australia’s goods trade surplus grew to a 10-month high of 7.08 billion AUD ($4.39 billion) in November, driven by a 4.8% rise in exports compared to a 1.7% increase in imports. However, retail sales for the same month rose only 0.8%, missing expectations of a 1.0% increase. Sluggish domestic demand is raising concerns about consumer spending heading into 2025.
Hyundai and Kia Shares Rally on Investment Announcements
South Korean automakers Hyundai Motor and Kia Corp saw their shares climb 2.8% and 3.8%, respectively, after the group announced its largest-ever investment plan of 24.3 trillion won ($16.65 billion) for 2025. The funds will focus on next-generation product development, production upgrades, and autonomous driving technologies.
Outlook
Asian markets remain under pressure from a mix of global and domestic challenges, including weak inflation data from China and cautious monetary policy signals from the Federal Reserve. Persistent deflationary concerns in China, coupled with geopolitical and structural headwinds, are likely to keep market volatility elevated in the near term.
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