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Global markets are bracing for a rocky start to the week, with Asian stocks expected to open on the defensive on Monday. The uncertainty stems from last week’s turmoil on Wall Street, where concerns over the U.S. economy and fresh tariff threats from former President Donald Trump weighed heavily on investor sentiment. With a light calendar of local economic data—featuring New Zealand retail sales, Singapore inflation figures, and a speech by Reserve Bank of New Zealand Deputy Governor Christian Hawkesby—the focus will remain on global developments. Investors worldwide are on edge, seeking safety in assets like bonds, gold, and the U.S. dollar, as the mood turns increasingly cautious.
One of the key events overshadowing the markets is Germany’s recent election, where opposition conservatives secured a victory, and the far-right Alternative for Germany (AfD) achieved its best-ever performance. This political shift is likely to add another layer of uncertainty for global investors already grappling with economic headwinds. Meanwhile, the U.S.-brokered peace talks between Russia and Ukraine, while a positive sign, are unlikely to lift the gloom significantly. The weak economic data from the U.S. and Europe last week set a somber tone, with investors now questioning the resilience of global markets.
The flight to safety is clear: U.S. Treasury yields dropped last week, while gold continued its remarkable run, rising for the eighth consecutive week—its longest streak since 2020. The precious metal is now hovering near the $3,000-an-ounce mark, reflecting heightened risk aversion. The U.S. dollar, after weeks of decline, also stabilized, as investors sought refuge in the world’s reserve currency. However, equities have borne the brunt of the instability, with the Nasdaq plunging 2.5% last week—its worst performance in three months. This underperformance has led some analysts to joke that the once-mighty U.S. tech sector, often referred to as the “Magnificent Seven,” may now be the “Lagnificent Seven.”
The broader market picture is mixed. The MSCI World index, a global equity benchmark, dipped 1% last week, while Eurozone stocks managed to hold their ground, shedding only 0.3% despite hitting new record highs. In contrast, the MSCI Asia ex-Japan index defied the gloom, rising 1.5% for its sixth consecutive weekly gain—the best streak since November 2022. This suggests a growing rotation out of U.S. stocks into European and Asian markets, driven by concerns that U.S. equities are over-owned and overvalued. European equity funds tracked by EPFR saw their largest inflow since early 2022, while Chinese tech stocks listed in Hong Kong surged an impressive 35% over the past six weeks. However, this momentum may not be sustainable, and a pullback could be on the horizon.
Despite the optimism surrounding Chinese tech stocks, the major indices in mainland China, Japan, and India remain in the red for the year. Investors are weighing the potential for further gains against the challenges posed by weak currencies and the lingering threat of U.S. tariffs. However, President Xi Jinping’s recent meeting with Chinese tech and business leaders appears to have lifted spirits, injecting a sense of optimism into the market. This “feel-good factor” may help offset concerns about the yuan and the uncertain trade relationship with the U.S., though risks remain elevated.
Looking ahead, several key developments could shape the direction of Asian markets on Monday. These include the aftermath of Germany’s election, the release of the German Ifo business confidence index for February, and Singapore’s inflation data for January. These indicators will provide further clues about the health of the global economy and the mood of investors. With markets already on edge, any signs of weakness or resilience could have a significant impact on trading behavior in the coming days.
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