Asian markets rise amid continued U.S. rate concerns

January 03, 2025 (MLN): Asian stocks rose on Friday as they aimed to recover from a lackluster start to 2025.

Meanwhile, the dollar remained at a two-year high against a basket of currencies, with investors concerned about U.S. interest rates staying elevated for a prolonged period.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.33% higher but on course for a nearly 1% drop for the week, as Reuters reported.

The index rose nearly 8% in 2024. Japan markets are closed for the week.

China stocks were steady on Friday after plunging on Thursday, highlighting growing worries about China's economy.

Concerns about a possible looming trade war also arose as Donald Trump prepared to begin his U.S. presidency this month.

China's blue-chip CSI 300 Index was 0.16 higher in early trading after logging its weakest New Year start since 2016 on Thursday.

Hong Kong's Hang Seng Index (HSI) rose 0.19%.

"It’s been a tough period for equities around the turn of the year, but strange things can happen in illiquid markets," said Ben Bennett, Asia-Pacific investment strategist at Legal and General Investment Management.

"I don’t think we should extrapolate this performance." Ben Bennett added.

"A stronger dollar and higher bond yields will weigh on sentiment going forward and equity investors will be hoping this changes soon", he further said.

U.S. stocks closed broadly lower on Thursday on Wall Street after initial gains failed to hold. Shares of Tesla (TSLA) sank 6.1% after reporting its first annual drop in deliveries.

The dim mood follows a stuttering end to 2024, which has dampened optimism built throughout the year.

This rally was driven by growth expectations surrounding artificial intelligence, anticipated Federal Reserve rate cuts, and hopes for deregulation policies from the incoming Trump administration.

Last month, the Federal Reserve jolted the markets by projecting fewer rate cuts than previously anticipated.

Additionally, rising worries that Trump's policies may prove to be inflationary have driven bond yields higher, boosting the dollar and hurting stocks.

Vasu Menon, managing director of investment strategy at OCBC, said Trump’s pro-growth and pro-business agenda may boost the US economy.

However, for the rest of the world, it may prove challenging due to possible tariffs and a stronger dollar.

"So, there is some degree of caution and anticipation in markets especially after the strong investment performance over the past two years," said Menon.

Data overnight showed that the number of Americans filing new applications for unemployment benefits dropped to an eight-month low of 211,000 last week.

This indicates low layoffs at the end of 2024 and is consistent with a healthy labor market.

That bodes well for the U.S. economy, with payrolls and inflation data later this month likely to be the focus for investors as they gauge how measured the Fed's rate cut approach is likely to be.

Traders are pricing in 44 basis points of easing this year, below the 50 bps the U.S. central bank projected in December.

That has left the dollar index , which measures the U.S. currency against six other units, at 109.2, just below the two year high of 109.54 it touched on Thursday.

The index rose 7% in 2024 as traders adjusted their interest rate expectations, Reuters further added.

The euro was meanwhile among the biggest losers against a towering dollar, having tumbled 0.86% in the previous session to a more than two-year low of $1.022475.

It was at $1.0269 in Asian hours on Friday, headed for a 1.6% weekly decline, its worst since November.

The yen strengthened a bit to 157.295 per dollar, but stood not too far from an over five-month low of 158.09 per dollar hit in December.

The yen fell more than 10% last year, its fourth straight year of losses.

In commodities, oil prices inched higher due to optimism over China's economy and fuel demand after a pledge by President Xi Jinping to promote growth.

Brent crude futures rose 0.16% to $76.05 a barrel, while U.S. West Texas Intermediate crude rose 0.18% to $73.25 a barrel.

Gold prices were steady at $2,658 per ounce, after a 27% rise in 2024, its strongest annual performance since 2010.

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