Asian stocks solid in harsh November on US rate cut predictions
Asian shares are poised to conclude a challenging November on a more stable note, as renewed optimism regarding a potential US rate cut alleviated concerns over valuations and propelled Treasuries to rally for the fourth consecutive month. The US markets, having been closed overnight for the Thanksgiving holiday, are set for a shortened session on Friday, resulting in a more subdued atmosphere across the major asset classes. European stocks experienced a predominantly upward trend, whereas currencies exhibited a more subdued performance. On Friday, MSCI’s broadest index of Asia-Pacific shares outside Japan remained unchanged, positioning it for a 3 per cent gain for the week, marking the first weekly increase in four weeks. For the month, it remained down 2.7 percent. Japan’s Nikkei showed minimal movement and was on track for a weekly increase of 3.2 percent. For the month, it was, however, down 4.3 percent. South Korean shares experienced a decline of 1 per cent following the central bank’s decision to maintain interest rates and indicate a conclusion to the easing cycle. Nonetheless, the index has risen by 2.5 percent over the course of the week.
November this year proved to be unusually turbulent for global equities as apprehensions regarding the soaring valuations of tech stocks rattled markets, while a US government shutdown concluded only after a historic 43 days. The risk-barometer bitcoin experienced a decline of 17 percent in November. The absence of economic data due to the government shutdown has led the Federal Reserve to exercise caution regarding additional policy easing. However, influential figures such as Fed Governor Christopher Waller and New York Fed President John Williams have expressed their backing for a rate cut next month, helping to stabilize sentiment. Fed funds futures are indicating an 85 percent likelihood of a rate cut next month, a significant shift from the 30 percent probability observed just a week prior, according to the reports. “If I put it all together, and if I look at valuation compared to bubbles in the past, for example, I think we’re not there fully yet,” said Vincenzo Vedda. “We believe generally that inflation remains in check… Generally speaking, over the next 12 months, we anticipate solid growth… Overall, you have a benign environment for risky assets.”
On Friday, Chinese blue-chips experienced a slight decline of 0.1 per cent, whereas Hong Kong’s Hang Seng index saw an increase of 0.3 per cent. Data released on Friday indicated that core consumer prices in Tokyo increased by 2.8 percent in November compared to the same month last year, surpassing expectations of a 2.7 percent rise. This contributed to a series of data that have sustained expectations for a rate hike from the Bank of Japan. There are increasing speculations that the BOJ may raise rates as early as next month, with markets currently pricing in approximately 30 percent likelihood. More BOJ board members are indicating a potential hike as the yen has fallen and political pressures to maintain low rates have diminished. The yen remained steady at 156.37 per dollar, recovering from a 10-month low of 157.9 reached last week. Investors are closely monitoring for intervention from Japanese authorities following weeks of verbal jawboning aimed at curbing the currency’s persistent decline.
In the broader currency market, the dollar remained steady against its major peers on Friday; however, it was poised for a weekly loss of 0.7 per cent, marking the largest decline since July. The Aussie and the kiwi have seen significant gains this week, rising by 1.2 per cent and 2 per cent, respectively, as markets speculate that the policy easing cycles in both nations are approaching their conclusion. Minutes from the European Central Bank’s latest meeting revealed that policymakers were not in a hurry to cut rates either. The potential for the Fed to ease its policy in December contributed to the rally in Treasuries. Benchmark 10-year Treasury yields remained steady at 4.0094 percent, poised for a monthly decrease of 10 basis points, marking the fourth consecutive month of declines. Oil prices remained relatively stable on Friday, yet they were on track for a fourth consecutive month of losses as the United States advocated for a peace plan regarding the Ukraine-Russia conflict. Front-month Brent crude futures, set to expire on Friday, remained steady at $63.34 a barrel. Spot gold prices increased by 0.7 per cent to $4,186 per ounce, resulting in a monthly gain of 4.6 per cent, though they remain some distance from the record high of $4,381.
