SYDNEY: Asian stock markets surged on Monday following encouraging news on U.S. inflation, which sparked optimism for future policy easing.

Investors are also breathing a sigh of relief after the U.S. government avoided a shutdown, setting a positive tone for global markets.

This week is comparatively quiet on the central bank front, with only minutes from recent meetings being released.

Unlike previous weeks filled with major announcements, there are no scheduled speeches from the Federal Reserve, and other U.S. economic data is expected to have limited impact.

The market landscape remains familiar, characterized by a robust U.S. dollar boosted by a strong economy and rising bond yields.

However, this dual strength poses challenges for commodities and gold prices while also complicating matters for emerging market countries, which are scrambling to intervene to stabilize their currencies and manage domestic inflation.

In a display of resilience, the MSCI Asia-Pacific index outside Japan climbed 0.3 percent following the positive inflation report from the U.S.

Japan's Nikkei surged 1.2 percent, buoyed by a 1.3 percent increase in the Topix automaker index, reflecting optimism about potential merger talks between Honda and Nissan. South Korean markets also rose by 1.3 percent, and Taiwan's market bounced back impressively with a 2.6 percent gain.

Meanwhile, Chinese blue chips perked up by 0.7 percent, despite a record low for 10-year bond yields at 1.665 percent, prompting the central bank to take measures to halt this decline.

On the European front, EUROSTOXX 50 futures dipped slightly by 0.2 percent, while FTSE and DAX futures remained stable.

U.S. markets also showed promise, with S&P 500 futures increasing by 0.4 percent and Nasdaq futures gaining 0.6 percent. Although the S&P 500 suffered nearly a 2 percent drop last week, it has risen about 23 percent this year.

If you exclude the 12 largest companies, however, this figure shrinks to just 8 percent, raising concerns about the risks that such concentration could pose heading into 2025.

Wall Street experienced a rally on Friday, propelled by lower-than-expected core U.S. inflation, which printed at 0.11 percent.

This eased some of the Fed's previously hawkish tone. Current data suggests that Fed funds futures now reflect a 53 percent probability of a rate cut by March and a 62 percent chance by May.

However, the anticipated cuts for 2025 have been scaled back, reflecting ongoing uncertainty about economic conditions.

JPMorgan economist Michael Feroli highlighted how recent trends in core inflation, coupled with rising threats from tariffs and immigration restrictions, have tempered inflation optimism at the Fed.

He predicts 75 basis points of cuts next year, contingent on inflation and unemployment rates.

In currency markets, the dollar index remained near a two-year peak at 107.720 and has appreciated 1.9 percent this month alone.

The euro is facing pressure, hovering at $1.0441 and testing critical support levels. The yen, firm at 156.55, has gained 4.5 percent this December, but faces potential intervention from the Japanese government if it approaches 160.00.

The dollar's strength, paired with elevated bond yields, has weighed heavily on gold prices, which slid 1 percent last week to settle at $2,625 an ounce.

Notably, oil prices also edged upward, benefitting from the bullish sentiment in risk assets.

However, concerns about Chinese demand—fueled by disappointing retail sales figures last week—linger.

Brent crude rose by 36 cents, reaching $73.29 per barrel, while U.S. crude gained 40 cents to $69.86 per barrel.

As investors digest these economic indicators, the landscape remains dynamic.

Will the optimism sustain as we look ahead? Stay tuned for further developments!