Asian shares decline, US treasury yields post record weekly gain

December 13, 2024 (MLN): Asian shares dropped on Friday as the strong U.S. dollar made investors cautious. At the same time, longer-term U.S, according to Reuters. 

Treasury yields are on track for their largest weekly increase this year because hopes for significant U.S. interest rate cuts in 2025 have faded.

A top-level meeting in Beijing pledged to increase debt and boost consumption but failed to boost Chinese equity markets. 

Policymakers are girding for more trade tensions with the U.S. as Donald Trump's return to power approaches.

It has been a week of rate cuts from Switzerland, Canada , and the European Central Bank, which had rate differentials working in the favour of the U.S. dollar.

The other main point of the week has been the rise in long-term treasury yields. 

Markets are still confident of a cut from the Federal Reserve next week but suspect it will sound cautious about next year. 

Futures imply little chance of a move in January, with just two more easing priced in to 3.8% by end-2025.

Thirty-year yields have jumped 22 basis points so far this week, their biggest since October 2023.

In contrast, rates in Europe are seen at 1.75% compared with 3% currently, while those for Canada are expected to fall from 3.25% to 2.7% by then, as Reuter reported.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.5% in Friday morning trade.

Japan's Nikkei fell 1% but is still on track for a weekly gain of 0.9%.

China's blue chips dropped 0.7% and Hong Kong's Hang Seng lost 1.2% after the Central Economic Work Conference did not offer details on new stimulus measures. 

A subindex of Chinese property firms listed in Hong Kong slid 2.6%.

Jian Chang, chief China economist at Barclays, said the CEWC likely disappointed markets as a Dec. 9 Politburo statement had raised hopes of more aggressive easing.

"We maintain our view that incremental and reactive policy is more likely than pre-emptive and 'bazooka' policy," he said.

On Wall Street, stocks closed lower overnight as some investors booked profits from the Nasdaq's relentless run to record highs. That said, Nasdaq futures rose 0.4% in Asia.

Data on U.S. producer prices came out a little hotter than expected in November at 0.4% but that was due to a 50% jump in egg prices. 

Reuters further said, the core reading was softer, prompting Goldman Sachs to adjust their forecast for inflation. 

They now expect the Fed's preferred measure, the core personal consumption expenditures price index, to show a monthly increase of 0.13% next week.

In the foreign exchange market, the dollar is on track for a weekly jump of 1% against its peers.

It gained 1.8% on the Japanese yen this week as markets scaled back the chance of a rate hike from the Bank of Japan next week to just 22%. 

The dollar also rose 1.6% on the swiss franc to 0.8919, just within a whisker of a five-month high of 0.8957, after the Swiss National Bank surprised economists by cutting by 50 basis points.

Oil prices dipped slightly on Friday but remained on track for solid weekly gains after the European Union approved new sanctions that could disrupt Russian oil supplies. 

U.S. West Texas Intermediate (WTI) fell 0.1% to $69.95 per barrel but is up 4% for the week.

Gold gained 2% this week to $2,690.21 per ounce, still some distance from its record of $2,790.

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