Anna 
Asian stocks navigated cautiously on Tuesday as the dollar lingered near a five-month low, driven by the prospect of cooling U.S. inflation, reinforcing expectations of imminent interest rate cuts by the Federal Reserve.
Investors continued to absorb data released on Friday, revealing a decline in U.S. prices for the first time in over 3-1/2 years, underlining the resilience of the American economy. MSCI’s broadest index of Asia-Pacific shares outside Japan inched up by 0.18%, poised for a 1.6% gain for the year. Meanwhile, Japan’s Nikkei eased by 0.07%, despite retaining its status as the best-performing Asian stock market with a remarkable 27% gain for the year.
With markets in Australia, New Zealand, and Hong Kong closed for the Boxing Day holiday, trading is expected to be thin on the day after Christmas.
Recent signals from the Federal Reserve, signaling an end to its tightening cycle and the potential for interest rate cuts in the coming year, have pleased stock investors. Citi analysts noted that the Federal Reserve has markedly shifted its rhetoric to ease financial conditions, citing slower core inflation and rising recession concerns as contributing factors.
As a result, markets are now pricing in a 75% chance of a 25 basis points rate cut from the Fed in March, a significant increase from the 21% chance at the end of November. Anticipations are high for more than 150 basis points of rate cuts in the coming year.
In Asian markets, China stocks eased by 0.12%, with online gaming companies still grappling with new rules to curb spending on video games. Hong Kong’s Hang Seng Index remained closed.
In the currency market, the dollar index held steady at 101.65, not far from the five-month low of 101.42 touched on Friday. The yen remained stable at 142.30 per dollar, buoyed by the prospect of the Bank of Japan potentially ending its ultra-easy policy. For the month, the yen is up 4%, marking a second consecutive month of gains against the dollar. However, for the year, the yen remains down 7.8% against the greenback.
Bank of Japan Governor Kazuo Ueda indicated on Monday that the likelihood of achieving the central bank’s inflation target was gradually rising, hinting at a potential policy change if prospects of sustainably achieving the 2% target increased sufficiently.
In the commodities market, U.S. crude rose by 0.1% to $73.63 per barrel, and Brent was at $79.06, down 0.42% in light trading. Investors kept a watchful eye on tensions in the Middle East following Houthi attacks on ships disrupting global shipping and trade.
Spot gold added 0.5% to reach $2,063.89 per ounce.
