Asian shares fell to a fresh three-month low on Friday as investors awaited critical U.S. inflation data that could either ease or intensify concerns over persistently high price pressures. Meanwhile, the dollar climbed to two-year highs.
European markets are poised for a weaker opening, with EUROSTOXX 50 futures down 1%. U.S. stock futures also retreated, with Nasdaq futures losing 0.6% and S&P 500 futures slipping 0.3%.
The market’s focus is on the upcoming Core Personal Consumption Expenditures (PCE) report, a key U.S. inflation gauge, due later in the day. Expectations point to a 0.2% monthly increase in November, but any upside surprises could prompt further reductions in market bets for U.S. policy easing next year.
Adding to market jitters, concerns are growing over divisions within the Republican Party regarding President-elect Donald Trump’s proposed spending initiatives. With a potential U.S. government shutdown looming on Saturday, the debate has highlighted internal Republican fault lines that could persist into next year.
Trump’s policy agenda, including tariffs, tax cuts, and increased spending, has contributed to the Federal Reserve’s cautious stance on policy easing for 2025. Markets now anticipate fewer than two rate cuts next year, with a terminal rate of 3.9%, significantly higher than projections from a few months ago.
This shift has weighed heavily on the Treasury market, driving benchmark 10-year yields up by 40 basis points over the past two weeks, pushing them above the critical 4.5% mark for the first time since May. [US/]
“Central banks are clearly grappling with the implications of geopolitical risks and growing uncertainties in 2025,” noted James Rossiter, head of global macro strategy at TD Securities.”Uncertainty will remain elevated, policy shocks will be significant, and markets are likely to experience greater volatility than in recent years. Buckle up—2025 is shaping up to be a wild ride.”
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.6% on Friday, marking a fresh three-month low and heading for a weekly decline of 3%.
Japan’s Nikkei was flat for the day but recorded a 1.7% weekly loss. Despite this, the index was up an impressive 16% for the year, buoyed partly by the yen’s weakness. The currency has depreciated 12% in 2024, prompting frequent intervention warnings from Japanese authorities.
In contrast, China’s blue-chip index and Hong Kong’s Hang Seng both gained 0.2%. The People’s Bank of China kept its benchmark lending rates steady on Friday, in line with market expectations.
Wrapping up an eventful year of monetary policy shifts, central banks in Britain, Japan, Norway, and Australia maintained their rates, while Switzerland and Canada enacted 50 basis point cuts in their final meetings of the year. Sweden’s Riksbank lowered its policy rate by 25 basis points, as did the European Central Bank in its most recent decision.
This backdrop has bolstered the U.S. dollar, which climbed to a two-year high of 108.43, benefiting from its relative interest rate advantage.
Meanwhile, the yen stabilized near a five-month low of 157.11 per dollar after a sharp 1.7% drop on Thursday. The Bank of Japan held rates steady, with Governor Kazuo Ueda striking a dovish tone, noting that more time is needed to evaluate wage trends and the impact of President-elect Trump’s policies.Data released on Friday revealed that Japan’s core inflation accelerated in November, yet market swaps suggest a 58% likelihood of the Bank of Japan maintaining its policy stance at its January meeting.
The euro has declined 1.4% this week, trading at $1.0359 and approaching a critical support level of $1.0331.
In the bond market, U.S. Treasuries appear on track for a fourth consecutive year of losses. The 10-year yields have surged 70 basis points this year, rising 16 basis points this week alone to reach 4.56%.
The strength of the U.S. dollar has weighed heavily on commodities. Oil prices declined on Friday, with U.S. West Texas Intermediate falling 0.6% to $68.98 per barrel, marking a 2.8% weekly drop.
Gold prices also took a hit, heading for a 2% weekly loss to settle at $2,596 per ounce.
