Written by Jamie McGeever
(Reuters) – Future outlook for the Asian market.
A crucial week for global markets begins in Asia on Monday. Investors are still trying to gauge whether the narrative of “American exceptionalism” is losing its luster as they weather a blizzard of headlines about President Donald Trump's likely economic policies.
Last week, the dollar fell 1.8%, its worst week since November 2023. It's not too surprising that the dollar is holding steady. The dollar hit a two-year high earlier this month, and hedge funds' net “long” positions were at an all-time high. This is the largest scale in the last nine years.
The dollar and U.S. stocks are closely correlated, buoyed by a huge wave of global capital inflows, as investors bet big on America's AI, technology, growth and earnings boom.
But if the dollar's decline is a sign that the flames of “American exceptionalism” are beginning to flicker, is Wall Street also ready for a period of cooling off?
It hit a new all-time high last week, and the Nasdaq is also close to it. Index levels are at historic highs this week, valuations are soaring, and the risk of big events looming in the form of a Fed policy meeting or “big tech” earnings.
The ripples surrounding the Chinese AI startup DeepSeek are spreading, and US technology is coming under increasing scrutiny. DeepSeek recently announced a free, open-source AI model that it claims is at least on par with established models like ChatGPT on many levels, yet can be built at a fraction of the cost.
It's still early days, but Wall Street could be shaken if it shines a critical light on the vast sums of money American tech companies are spending on AI.
Monday's Asian calendar is dominated by China's “official” Manufacturing and Services Purchasing Managers' Business Index report for January.
According to a Reuters poll, the manufacturing PMI is expected to remain unchanged from last month at 50.1. On the other hand, this marks the sector's fourth consecutive month of expansion. This also marks two consecutive months of almost no growth.
Profits at Chinese state-owned enterprises virtually evaporated last year, rising just 0.4% from a year earlier, data showed on Friday. Broad industrial sector profit figures are expected to be released this week, possibly as early as Monday, and are expected to confirm that 2024 was the worst year in decades.
Investors will have a second day to decide on the Bank of Japan's interest rate hike on Friday. Despite initial expectations of a “hawkish rate hike,'' Japan's money market is still pricing in another 25 basis points of tightening this year, unchanged from the level seen before Friday. This suggests that the BOJ's guidance was actually quite neutral, with Japanese stock futures pointing to a big rally on Monday.
Meanwhile, South Korean markets will be sensitive to news on Sunday that prosecutors have impeached President Yun Seok-Yeol on charges of leading a rebellion by imposing a brief period of martial law on December 3.
Here are the key developments that could give further direction to the market on Friday:
– China “Official” PMI (January)
– Japan's leading indicators (November)
– German Ifo Index (January)
