Asian stocks eased on Tuesday amid cautious end-of-year trading, with investors scaling back expectations for significant U.S. rate cuts in 2025 and preparing for the incoming Trump administration. The dollar remained strong against most other currencies.
Trading volumes were thin, with the New Year holiday approaching and Japan closed for the rest of the week. The Santa rally lost some momentum as higher Treasury yields weighed on lofty equity valuations and supported the dollar.
The MSCI index for Asia-Pacific shares outside Japan fell 0.2%, though it was on track for an 8% gain in 2024, marking its second consecutive year of positive performance.
China’s CSI300 index held steady, while Hong Kong’s Hang Seng index rose 0.3% in early trading.
Earlier data showed that China’s manufacturing activity expanded for the third consecutive month in December, but at a slower pace, indicating that recent stimulus efforts are helping support the economy.
On Wall Street, all three major U.S. indexes closed lower on Monday in a broad selloff, driven by end-of-year tax adjustments, valuation concerns, and uncertainty about 2025.
Kyle Rodda, a senior financial market analyst at Capital.com, noted that the key concern for the markets right now is the risk of a “re-rating in bond markets” due to persistent inflation in the U.S. and the effects of Trump-era tax cuts and tariffs.
Despite the end-of-year weakness, U.S. stocks have posted strong gains this year, with the Nasdaq poised for a 30% annual rise and the S&P 500 on track for more than a 24% increase.
The somber year-end sentiment is expected to persist in Europe, with Eurostoxx 50 futures falling 0.67%, German DAX futures down 0.62%, and FTSE futures dropping 0.08%.
Investor attention in the coming year will be on the Federal Reserve’s rate policy after the central bank projected just two rate cuts this month, down from four in September, due to persistently high inflation.
Cash Treasuries were inactive due to the holiday in Japan, while Treasury futures showed little movement. Ten-year yields stood at 4.54% on Monday, having risen nearly 69 basis points this year.
Markets are also preparing for the policies of President-elect Donald Trump, which include looser regulations, tax cuts, tariff increases, and stricter immigration rules. These are expected to be both pro-growth and inflationary, keeping U.S. yields elevated.
Tony Sycamore, a market analyst at IG, stated, “The market’s reaction to these policies will be key in determining whether stocks continue to rise into the first quarter of 2025 or experience a cooling-off period or correction.”
In Asia, Taiwan’s tech-heavy index surged 28% this year, marking its best annual performance since 2009. Japan’s Nikkei rose 19% for the year, while Hong Kong’s Hang Seng increased by 18%.
Pakistan’s benchmark stock index soared 85%, boosted by improved investor sentiment following a $7-billion IMF bailout in September, supporting a fragile recovery in the South Asian economy.
On the other hand, South Korea’s KOSPI was the worst-performing stock market in Asia this year, declining 10% due to political instability.Shifting expectations regarding U.S. interest rates and the growing interest rate differential between the United States and other economies have boosted the dollar while putting pressure on other currencies.
The yen showed slight strength on Tuesday, trading at 156.435 per dollar, but is on track for a more than 10% drop for the year, marking its fourth consecutive annual decline. The euro last traded at $1.041225, set to fall nearly 6% in 2024.
The dollar index, which tracks the U.S. currency against six other major currencies, slipped 0.1% to 107.95, though it remains near the two-year high reached in November. The index is poised to rise 6.5% this year.
In commodities, oil prices are on track for a second consecutive year of decline, driven by demand concerns in major consuming nations. For the year, Brent crude futures have fallen 3.2%, while U.S. West Texas Intermediate crude is down 0.6%.
However, gold has had a standout year, surging over 26%, marking its best annual performance in more than a decade, fueled by safe-haven demand amid global geopolitical tensions and easing monetary policies.
