TODAY’S NEWS
Asian stock markets dipped slightly on Monday as high Treasury yields pressured high equity valuations on Wall Street while boosting the U.S. dollar to near multi-month highs. Market activity was subdued ahead of the New Year holiday and a light economic calendar for the week. Key upcoming data include China’s PMI factory surveys on Tuesday and the US ISM survey for December on Friday.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), fell 0.2%, but is still 16% higher for the year. Japan’s Nikkei (.N225), opens new tab eased 0.2%, but is sitting on gains of 20% for 2024.
By contrast, South Korea’s main index, weighed down by recent storm of political uncertainty, is down over 9% for the year, losing another 0.35% on Monday.
S&P 500 futures and Nasdaq futures were both off 0.1%. Last Friday, Wall Street suffered a broad-based sell off with no obvious trigger, though trading volumes were just two-thirds of the daily average.
The S&P 500 is still up 25% for the year and the Nasdaq 31%, which is stretching valuations when compared to the risk-free return of Treasuries.
Treasury Yields and Corporate Earnings Outlook
Yields on 10-year Treasuries are near eight-month highs at 4.631%, ending the year 75 basis points higher despite the Federal Reserve cutting cash rates by 100 basis points. Investors expect U.S. corporate earnings growth to slow to just over 10% in 2025, down from a 12.47% rise forecasted for 2024.
“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.”
Bond markets may also face pressure from growing supply concerns as President-elect Donald Trump’s proposed tax cuts lack concrete plans to curb the budget deficit. Trump is anticipated to issue at least 25 executive orders after taking office on January 20, covering topics like immigration, energy, and cryptocurrency policy.
US Dollar Strength and Community Markets
Widening interest rate differentials have bolstered the U.S. dollar, which has risen 6.5% against a basket of major currencies in 2024.
The euro has lost more than 5% on the dollar so far in 2024, currently trading near a two-year low at $1.0429, not far from its recent two-year trough of $1.0344.
The dollar held near a five-month high against the yen at 157.71, with only the risk of Japanese intervention preventing another test of the 160.00 barrier.
Gold prices have struggled under the dollar’s strength but remain 28% higher for the year at $2,624 per ounce. Oil markets faced a tougher year, with demand concerns—particularly from China—weighing on prices. Brent crude fell 37 cents to $73.80 per barrel, while U.S. crude slipped 17 cents to $70.43. OPEC+ has repeatedly extended supply cuts to support prices.
Other News
Japan’s Factory Activity Declines at a Slower Rate, PMI Reveals
Factory activity in Japan declined at a slower rate in December due to eased decrease in production and new orders, edging closer to stabilization after recent falls.
Most Gulf Markets Rise as Oil Prices Climb
On Sunday, Most stock markets in the Gulf closed the day higher owing to Friday’s rise in oil prices. Oil prices settled more than 1% higher on Friday.
South Korea’s November Factory Output Drops More than Expected
The industrial output index (KRIO=ECI) dropped 0.7% over the month on a seasonally adjusted basis, compared to a fall of 0.4% forecast in a Reuters survey of economists.
