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Australia’s 10-year government bond yield inched down to around 4.75% but remained close to an over two-year high, as investors continued to price in near-term rate hikes despite data showing that inflation has cooled. Headline inflation slowed to 3.4% in November from 3.8% in October and was below expectations of 3.7%. The closely watched trimmed mean inflation also eased to 3.2% from 3.3%. However, both figures were still above the Reserve Bank’s 2–3% target band, suggesting that inflation remains sticky. Attention has now shifted to the full fourth-quarter CPI report due later this month for further guidance. Recently, the central bank has signaled that policy tightening may be required if disinflation does not progress as expected. Traders currently assign a 35% probability to a 25-basis-point rate hike at the RBA’s February meeting, with such a move almost fully priced in by May.

Australia 10-Yr Yield Stays Close to 2-Year Highs

Indonesia’s IDX Composite rose 25 points, or 0.3%, to a new peak of 8,957 in early Wednesday trade, extending strength for a sixth straight session. Firmer U.S. futures supported the upside momentum after the S&P 500 and Dow closed at record highs overnight, as investors looked past geopolitical tensions in Venezuela and shifted focus to upcoming U.S. labor market data for clues on the Fed’s policy path. Sentiment was also lifted by signals from China’s central bank that rate cuts and reserve requirement reductions remain on the table to stabilize growth and ensure liquidity. Still, caution ahead of December CPI and PPI data from the mainland capped market strength. Locally, Indonesia faces softer export momentum while inflation pressures have resurfaced, driven by food costs and rising global gold prices. Gains were led by basic materials, energy, and industrials, with notable movers from Aneka Tambang (10.1%), Darma Henwa (3.7%), Rukun Raharja (3.0%), and Bumi Resources (2.2%).

Indonesia Market Pushes to Another High

The Shanghai Composite fell 0.2% to below 4,080 while the Shenzhen Component gained 0.3% to 14,070 on Wednesday, with mainland stocks struggling for clear direction as mounting geopolitical tensions between Asia’s two largest economies dampened investor sentiment. The market reacted to China’s imposition of export controls on military-use products to Japan, following remarks by Prime Minister Sanae Takaichi on Taiwan last year. The restrictions cover a range of items, including electronics, sensors, and technologies used in shipping and aerospace. Defense-related stocks were hit, with China Spacesat falling 5.6%, Beijing Leike Defense Technology down 1.3%, and China Aerospace declining 0.8%. Conversely, technology and artificial intelligence-linked shares continued to outperform, with notable gains from Zhongji Innolight (+2.8%), BlueFocus Intelligent (+7%), and Giga Device Semiconductor (+5.7%).

China Stocks Mixed as Geopolitical Risks Weigh

Hong Kong equities dipped 287 points, or 1.1%, to 26,431 in Wednesday morning trade, reversing rallies from the past three sessions as traders booked profits after the market touched a seven-week high. Broad sector weakness weighed, with tech and consumer stocks leading declines, ahead of China’s December CPI and PPI data later this week and Hong Kong's forex reserves figures due today. Losses were limited, however, after China's central bank signaled its readiness to cut rates and lower banks’ reserve requirements this new year to bolster the slowing economy. The PBoC also pledged stronger counter-cyclical measures, improved credit transmission, and support for the launch of China’s new five-year plan. Meanwhile, mainland shares extended their upturn, holding at decade highs amid strong optimism about AI. Early notable Hong Kong decliners included Tencent Music Entertainment (-3.9%), XPeng (-2.7%), PICC Property & Casualty (-2.6%), SMIC (-1.5%), and Trip.com (-0.9%).

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