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  • FRIDAY MARKET WRAP 23 JANUARY, 2025

FRIDAY MARKET WRAP 23 JANUARY, 2025

Olusegun Enujowo

Analyst

ASIA STOCKS: Rise on China Hopes

Most Asian stocks rose on Friday tracking record highs on Wall Street and optimism over more policy relief for China. Regional markets took a positive lead-in from Wall Street, where the S&P 500 hit a record high as President Donald Trump said he will call for lower interest rates from the Federal Reserve. Sentiment towards Asian markets was also supported this week by China outlining more support for local equities, as they grappled with concerns over increased trade tariffs under Trump.

Japan’s Nikkei 225 and TOPIX indexes rose 0.4% and 0.6%, respectively, trimming some gains after the BOJ's move. Both indexes were trading up between 3% and 5% this week, as analysts bet that a BOJ rate hike was largely priced in. The central bank raised interest rates by 25 basis points as widely expected, but forecast higher inflation and slower growth in the coming years. The BOJ also warned that it will raise interest rates further if its economic forecasts were met, offering up one of the clearest signals on more rate hikes. Strong consumer price index inflation data, released earlier in the day, furthered bets on a rate hike. But while higher rates bode poorly for Japanese markets, they also reflect increasing confidence in the local economy, which stands to benefit domestically exposed sectors. Purchasing managers index released on Friday showed Japan's manufacturing sector shrank for a seventh consecutive month in January. But growth in services picked up sharply.

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rose 0.7% and 0.4%, respectively, extending gains from earlier in the week. Hong Kong’s Hang Seng index was a standout performer in Asia, rallying 1.7% on gains in major chipmaking stocks, as investors bet that recent U.S. export controls would boost local demand for the sector. Sentiment towards China was buoyed by Trump floating the idea of a Sino-U.S. trade deal, just days after he threatened to impose 10% tariffs on Beijing by February 1. Chinese markets had initially fallen this week after Trump's threat. But local markets rebounded on more policy support from Beijing. The government asked state-run insurers and financial institutions to deploy more capital into local equities. 

Chinese markets will be closed next week for the Lunar New Year holiday. But before that, key PMI data for January is due on Monday. 

Future of Dollar Paired Currencies: EURUSD, GBPUSD, AUDUSD, NZDUSD, USDCAD, USDJPY, USDCHF: 

On Thursday, BCA Research, a prominent financial research firm, shared insights into the future of the U.S. dollar, forecasting a potential decline by mid-2025. Marko Papic, Chief Strategist & Senior VP at BCA Research, expressed a positive outlook for the dollar in the near term, particularly as President Trump continues to promote tariffs and tax cuts. However, Papic anticipates that the combination of high U.S. Treasury bond yields and a growing budget deficit will compel the President to moderate his aggressive fiscal policies, which could ultimately weaken the dollar. The strategist pointed out that the U.S. government's reliance on stimulative fiscal policies to bolster American assets is unsustainable, and he expects the dollar to start declining once the reality of government spending becomes apparent. Despite a strong jobs report that has recently fueled the dollar's performance, Papic cautions that this upward trend may not be sustainable in the face of fiscal policy challenges. Papic believes that while the dollar could potentially revisit its 2022 highs of 113 on the dollar index in the short term, Trump's fiscal approach will face significant hurdles within the next six months. The President's ambitious spending plans are at odds with a budget deficit that has already reached alarming levels. The need to balance these expansive fiscal ambitions with the demands of a bond market that is losing patience will likely force Trump to scale back on his promised tax cuts and trade tariffs. These policy shifts, which the markets have been counting on to maintain the strength of the dollar, could lead to disappointment and contribute to the currency's eventual decline.


CRUDE OIL: battered by Trump energy policies 

Oil prices fell in Asian trade on Friday and were headed for weekly declines as U.S. President Donald Trump called for lower crude prices and higher energy production in the U.S. Markets also remained on edge over Trump’s plans for trade tariffs against major economies, which could potentially disrupt global trade and weigh on oil demand. Brent oil futures expiring in March fell 0.6% to $77.82 a barrel, while West Texas Intermediate crude futures fell 0.6% to $74.21 a barrel. Both contracts were trading down between 3.6% and 4.8% for the week- their worst performance since November.  Oil prices were dented chiefly by Trump calling for increased energy production in the U.S., with the President declaring a national emergency over the matter. Trump signed an executive order calling for increased U.S. oil production, while also scaling back certain climate-related restrictions on the energy sector. Trump on Thursday called on Saudi Arabia and the Organization of Petroleum Exporting Countries to lower oil prices, sparking further losses in crude markets. The President’s agenda of lower oil prices is likely driven by his intention to bring down U.S. inflation- a scenario that does bode well for the economy in the long run. But his calls for lower oil prices will likely elicit a mixed response from the energy industry, given that lower prices dent margins. Lower prices also complicate the prospect of increased investment in the energy sector, which Trump has been clamoring for.

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