Asia Stocks Plunge as Trump-Xi Deal Reached, BOJ Stands Firm
Asian stock markets experienced volatility today amid significant geopolitical developments. U.S. President Donald Trump announced a deal with Chinese President Xi Jinping regarding rare earths and tariffs, affecting global trade dynamics.
Trump and Xi Reach Trade Agreement
Following a near two-hour meeting, Trump disclosed that the agreement includes a reduction in tariffs on Chinese imports. In exchange, China will revive its purchases of American soybeans, maintain rare earth exports, and intensify the crackdown on fentanyl trafficking.
Market Reaction to the Agreement
The immediate response from traders was mixed, as they sought to understand the full implications of the agreement. The MSCI Asia-Pacific index, which tracks major stocks outside Japan, reversed initial gains and was last down 0.5%.
- U.S. S&P 500 e-mini futures also declined by 0.1%.
- Analyst Kyle Rodda noted that markets had likely priced in some of these developments already.
Bank of Japan Maintains Interest Rates
Meanwhile, the Bank of Japan (BOJ) decided to hold interest rates steady. This decision included a 7-2 split vote among policymakers. The Nikkei 225 index dropped by 0.4% following the BOJ’s announcement, and the yen traded flat at 152.77 against the U.S. dollar.
Future Rate Hike Speculations
HSBC’s chief economist Fred Neumann suggested that the BOJ is cautiously moving toward a potential rate hike, especially with December approaching.
U.S. Federal Reserve Developments
Yesterday, the Federal Reserve lowered interest rates by 25 basis points. However, comments from Fed Chair Jerome Powell raised concerns about future rate cuts. The ongoing U.S. government shutdown has affected the availability of economic data.
- The current market expectation for a December rate cut has decreased significantly.
- Only a 67.8% chance of the Fed maintaining current rates was noted compared to 9.1% earlier.
Impact on Global Markets
The U.S. 10-year Treasury bond yield hit a three-week high of 4.066%. The dollar index slipped slightly to 98.98. Meanwhile, gold prices grew by 0.8%, reaching $3,960 per ounce.
Tech Sector Pressures and Earnings Season
As the corporate earnings season unfolds, anxiety grips investors concerning technology stocks, especially amid rising expenses tied to artificial intelligence development. Major companies like Meta and Microsoft have reported substantial increases in their capital expenditures.
- Meta anticipates a “notably larger” capital expenditure for next year.
- Microsoft’s AI infrastructure spending reached nearly $35 billion last quarter.
However, Alphabet, Google’s parent company, bucked the trend by surpassing revenue expectations, resulting in a rise during after-hours trading.
Energy Market Update
In the energy sector, Brent crude oil prices dipped by 0.5% to $64.59 per barrel. This decline reflects ongoing adjustments in response to global economic signals.
