As high Treasury rates challenged high Wall Street market valuations and supported the U.S. currency near multi-month heights, Asian shares dipped slightly on Monday.
Volumes were low this week due to a very sparse data diary and the approaching New Year holiday. The U.S. ISM survey for December is scheduled for Friday, and China’s PMI factory surveys are due on Tuesday.
Despite a 0.2% decline, MSCI’s broadest index of Asia-Pacific stocks outside of Japan is still up 16% for the year. Similarly, Japan’s Nikkei is still holding onto 20% gains for 2024.
The major index of South Korea has not fared as well, suffering losses of over 9% for the year after encountering a storm of political unpredictability in recent weeks. The last off was 0.35%.
Both Nasdaq and S&P 500 futures saw a 0.1% decline. Friday saw a widespread sell-off on Wall Street with no clear cause, despite volumes being only two-thirds of the daily average.
When compared to the risk-free return of Treasuries, the S&P 500 is still up 25% for the year and the Nasdaq is up 31%, which is stretching values. According to LSEG statistics, investors anticipate earnings per share to expand by a little over 10% in 2025, compared to an anticipated 12.47% increase in 2024.
However, even though the Fed dropped cash rates by 100 basis points, 10-year Treasury yields are close to eight-month highs at 4.631% and ended the year about 75 basis points higher than they began.
“The continued rise in bond yields, driven by the reassessment of less restrictive monetary policy expectations, creates some concern,” said Quasar Elizundia, a research strategist at broker Pepperstone.
“The possibility that the Fed may keep restrictive monetary policy for longer than expected could temper corporate earnings growth expectations for 2025, which could in turn influence investment decisions.”
Given that President-elect Donald Trump is pledging tax cuts but has offered few specific plans to control the budget deficit, bond investors may also be concerned about the growing supply.
When Trump assumes office on January 20, he is anticipated to issue at least 25 executive orders on a variety of topics, including energy, immigration, and cryptocurrency policy.
The demand for the U.S. dollar has been sustained by widening interest rate differences, resulting in gains of 6.5% on a basket of foreign currencies this year.
The euro yesterday stood at $1.0429, not far from its previous two-year low of $1.0344, after losing more than 5% against the dollar thus far in 2024.
Only the possibility of Japanese intervention prevented another test of the 160.00 barrier, as the dollar maintained close to a five-month high against the yen at 157.71.
Even though gold is still 28% higher for the year at $2,624 an ounce, the dollar’s rise has somewhat hurt gold prices. [GOL/]
This year has been more difficult for oil as worries about demand, especially from China, have kept prices low and compelled OPEC+ to repeatedly renew an agreement to restrict supply. [O/R]
U.S. crude dropped 17 cents to $70.43 a barrel, while Brent dropped 37 cents to $73.80.
