Asian shares slipped on Monday as elevated U.S. Treasury yields weighed on high Wall Street equity valuations and supported the U.S. dollar near multi-month highs.
Trading volumes remained thin with the New Year holiday approaching and a relatively quiet week ahead on the economic calendar. Key releases include China’s PMI factory surveys on Tuesday and the U.S. ISM survey for December on Friday.
MSCI’s broadest index of Asia-Pacific shares outside Japan declined 0.2%, though it remains up 16% for the year. Japan’s Nikkei also edged down 0.2% but boasts a 20% gain for 2024.
South Korea’s main index has faced a tougher year, hit by recent political uncertainties, leaving it down over 9% year-to-date. It last fell by 0.35%.
Futures for the S&P 500 and Nasdaq both slipped 0.1%. Wall Street saw a broad sell-off on Friday with no clear catalyst, although trading volumes were only about two-thirds of the daily average. [.N]
Despite the dip, the S&P 500 is up 25% for the year, and the Nasdaq has gained 31%, stretching valuations when compared to the risk-free returns offered by Treasuries. According to LSEG data, investors are expecting earnings per share growth of just over 10% in 2025, following a projected 12.47% rise in 2024.
Meanwhile, yields on 10-year U.S. Treasuries remain near eight-month highs at 4.631%, ending the year roughly 75 basis points higher than where they began, despite the Federal Reserve implementing 100 basis points of rate cuts during the year.
“The ongoing rise in bond yields, driven by a reassessment of less restrictive monetary policy expectations, is sparking some concern,” noted Quasar Elizundia, a research strategist at broker Pepperstone.
“The possibility of the Federal Reserve maintaining restrictive monetary policy longer than anticipated could dampen corporate earnings growth projections for 2025, potentially impacting investment decisions,” Elizundia added.
Bond investors may also be cautious about increasing supply as President-elect Donald Trump has proposed tax cuts without offering clear plans to address the budget deficit.
Trump is expected to sign at least 25 executive orders after taking office on January 20, addressing issues ranging from immigration and energy to cryptocurrency policies.
Widening interest rate differentials have kept the U.S. dollar in demand, resulting in a 6.5% gain for the year against a basket of major currencies.
The euro has dropped over 5% against the dollar in 2024, last trading at $1.0429, close to its recent two-year low of $1.0344. The dollar also held near a five-month high against the yen at 157.71, with only the risk of Japanese intervention preventing another challenge to the 160.00 level.
The dollar’s strength has weighed on gold prices, though the precious metal remains up 28% for the year, trading at $2,624 per ounce. [GOL/]
Oil, however, has faced a tougher year, with demand concerns, particularly from China, capping prices and prompting OPEC+ to repeatedly extend production cuts. [O/R] Brent crude dipped 37 cents to $73.80 a barrel, while U.S. crude slipped 17 cents to $70.43 a barrel.
