Can Asia Break Free From Its Weekly Downward Run?

The Asian markets are positioned for a turnaround on Monday, with investors eyeing a potential end to the consecutive declines that have plagued the region. After dropping over 110 points or 2.9 percent across back-to-back sessions, the Shanghai Composite Index finds itself hovering just above 3,830, signaling that a reversal might be within reach. The question now becomes: how long will this downward run persist?

The primary catalyst driving optimism is the shifting narrative around interest rates. New York Federal Reserve President John Williams delivered dovish remarks suggesting the Federal Reserve may lower rates at its December monetary policy meeting. This development has rekindled confidence across global markets, with the University of Michigan’s latest report showing declining year-ahead inflation and softening long-run inflation expectations throughout November. These tailwinds proved instrumental in powering Wall Street higher on Friday, with the momentum likely to extend into Asian trading.

Friday’s Market Action Tells the Story

On Friday, China’s markets couldn’t escape the selling pressure, despite Wall Street’s afternoon rally. The Shanghai Composite Index nosedived 96.16 points or 2.45 percent, closing at 3,834.89 after oscillating between 3,834.75 and 3,912.01. The Shenzhen Composite Index fared worse, plummeting 84.12 points or 3.43 percent to settle at 2,370.32. This performance underscores just how deep the weekly losses have cut.

Sector-wide weakness defined the day, with financial stocks, resource shares, and property developers all under pressure. Among major players, Agricultural Bank of China slumped 1.35 percent, while China Life Insurance tumbled 2.07 percent. The commodity complex bore the brunt of selling, with Jiangxi Copper plunging 3.91 percent and Aluminum Corp of China (Chalco) plummeting 4.71 percent. Energy stocks reflected broader oil market weakness, as PetroChina dropped 0.89 percent and China Petroleum and Chemical (Sinopec) declined 1.32 percent.

Wall Street’s Bullish Lead

Across the Pacific, U.S. bourses staged a convincing rally that could serve as the model for Asian markets to follow. After opening flat, Wall Street rallied into the close, with the Dow jumping 493.15 points or 1.08 percent to 46,245.41. The NASDAQ surged 195.03 points or 0.88 percent to 22,273.08, while the S&P 500 gained 64.23 points or 0.98 percent to finish at 6,602.99. Despite Friday’s gains, the weekly scorecard remained negative—the NASDAQ fell 2.7 percent, the S&P 500 tumbled 2.0 percent, and the Dow slipped 1.9 percent.

The strength that emerged on Wall Street reflected renewed optimism about the Federal Reserve’s rate-cutting trajectory, particularly following dovish signals from key policymakers. This sentiment shift has the potential to reverberate through Asian markets, offering a pathway to end the ongoing losing streak.

Energy Markets Weaken on Supply Concerns

Crude oil prices retreated Friday amid oversupply anxieties, particularly after Ukraine signaled support for a U.S. peace proposal to resolve the Russia-Ukraine conflict. West Texas Intermediate crude for January delivery dropped $0.86 or 1.46 percent to $58.14 per barrel, a decline that weighed on energy-linked stocks across the region.

The global forecast suggests renewed momentum for Asian equities as interest rate expectations become more dovish and U.S. market strength provides technical support. Whether this translates into a decisive break from the downward run will depend on how quickly the rate narrative gains traction in Monday’s session.