Stock market today: Asia stocks follow Wall Street higher, while China keeps its key rate unchanged

HONG KONG — Asian shares were mostly higher on Monday as Tokyo continued its New Year’s rally as China’s central bank kept one-year policy bond rates unchanged.

US futures and oil prices rose.

China’s central bank opted Monday to keep interest rates on one-year policy loans at 2.5% while it injects money into the financial system. That surprised market observers because it went against the expected trend of lowering borrowing costs to stimulate the economy.

The “policy focus has shifted to the effectiveness of monetary policy,” ANZ’s Zhaopeng Xing and Raymond Yeung said in a report. “Today’s hold means there is a greater chance of a reduction in the RRR (reserve ratio requirement) in February.”

Hong Kong’s Hang Seng fell 0.1% to 16,185.00, while the Shanghai Composite index rose 0.2% to 2,886.29.

Search engine provider Baidu fell 8.6% after a local newspaper report claimed the company’s Ernie AI platform was linked to Chinese military artificial intelligence research. Baidu said in a statement that it has “no affiliation or other partnership with the academic institution in question.”

Tokyo’s Nikkei 225 rose 0.9% to 35,901.79 and South Korea’s Kospi was almost flat at 2,525.99.

Ruling party candidate Lai Ching-te emerged victorious in Taiwan’s presidential election on Saturday, a result that will determine the trajectory of the self-ruled democracy’s controversial ties with China over the next four years. The Democratic Progressive Party, to which Lai belongs, has consistently rejected China’s claims of sovereignty over Taiwan.

Taiwan’s Taiex gained 0.2% to 17,546.82.

The Australian S&P/ASX 200 was virtually unchanged at 7,496.30.

On Friday the S&The P 500 rose 0.1%, the Dow Jones Industrial Average fell 0.3%, dragged by a sharp loss for UnitedHealth Group following the results. The Nasdaq was essentially flat, rising less than 0.1%.

Shares have been heading towards records for months, causing the S&P500 is within 0.3% of its all-time high, on hopes that inflation cools enough for the Federal Reserve to cut rates several times this year.

On these expectations, Treasury yields have already fallen in the bond market, and they fell further after a report showed U.S. wholesale inflation last month was weaker than economists expected. The data reinforced expectations for rate cuts a day after another report showed inflation at the consumer level was warmer than expected.

The yield on ten-year government bonds fell from almost 4% just before the publication of the report to 3.94%. In October, interest rates were above 5% and at their highest level since 2007. Eased interest rates and yields are easing pressure on the economy and financial system, while investment prices are rising.

Traders are largely betting that the Fed will cut its key interest rate six or more times through 2024. That would be a much more aggressive course than the Fed itself has hinted. It even warns that it could raise rates even further if inflation does not continue to trend convincingly towards its 2% target. The federal funds rate is already at its highest level since 2001.

The reporting season for the end of 2023 unofficially started last Friday with a flood of messages from banks.

Delta Air Lines fell 9% even as it reported stronger earnings and revenue for the final three months of 2023 than analysts forecast. The airline’s forecast margin for next year’s profit indicated it could fall below analyst expectations.

The airline and other travel-related companies were also hit by a rise in oil prices, putting pressure on their fuel costs. United Airlines fell 10.6% and Norwegian Cruise Line Holdings lost 4.3%.

Crude oil prices continued to rise after last week’s gains amid concerns about possible supply disruptions after Yemen’s Houthi rebels vowed fierce retaliation for US and British attacks against them. A barrel of U.S. crude rose 5 cents to $72.84. Brent crude, the international standard, rose 11 cents to $78.40 a barrel.

The US dollar stood at 145.45 Japanese yen, up from 144.92. The euro rose from $1.0950 to $1.0961.