After some recent high advances, Asian sharemarkets started December cautiously, but mounting optimism that Europe and the US will lower interest rates should lessen the pressure on regional currencies and central banks. After falling more than 2% over night, oil prices around the world kept going down as OPEC+ producers’ voluntary output cuts for the first quarter of 2019 didn’t meet market expectations. The largest MSCI index of Asia-Pacific stocks outside of Japan dropped 0.5% following a record high of 7.3% previous month. Japan’s Nikkei was unchanged in November, despite posting its best month in three years with an 8.5% increase.
Hong Kong‘s Hang Seng market declined 0.4% while Chinese bluechips plummeted 0.6%. In November, purchasing managers’ regional surveys produced a mixed bag of results. Based on a private poll, China’s manufacturing industry resumed growth, South Korea‘s factory activity stabilised, and Japan’s factory activity declined at the sharpest rate in nine months. Data last night showed that inflation in the United States and Europe is declining as expected. The personal consumption expenditures (PCE) price index, the favoured inflation indicator of the Federal Reserve, remained constant in October despite a decline in consumer spending.
The biggest surprise came from the euro zone’s inflation, which significantly fell short of forecasts. This caused the euro to weaken and caused markets to factor in rate cuts of roughly 110 basis points starting in April of next year. As traders await Fed Chair Jerome Powell’s Q&A session on Friday, bulls are speculating that the head of the central bank will grant their aggressive wagers on early U.S. policy easing for the upcoming year. Rate cuts of 115 basis points are implied by Fed funds futures.