Author: Rae Wee
SINGAPORE (Reuters) – Asian shares got off to a tense start to the year on Thursday as they struggled to pull up after jitters near 2024, while the U.S. dollar rose and investor sentiment remained cautious ahead of Donald Trump's return to the White House.
The start of the new year was shaping up to be less favorable for stocks as uncertainty over the policies of US President-elect Trump and a hawkish outlook from the Federal Reserve looked set to dominate market rhetoric for the time being.
While global stocks closed 2024 with a strong year-to-date gain of nearly 16%, they posted a monthly loss of more than 2% in December.
So was MSCI's broadest index of Asia-Pacific shares outside Japan, which fell 1.2% in December, although it posted a gain of more than 7% for 2024.
The index was last down 0.5% at the start of the Asian session on Thursday, with volume reduced due to a business holiday in Japan.
“I think we're now in the twilight zone between now and January 20,” said IG market analyst Tony Sycamore.
Trump will be sworn in as President of the United States on January 20 for his second term.
“It's very unusual for stocks not to have a positive December … and that worries me a little because when markets don't go up at times like this when they should be up, it generally means there are other concerns.” Sycamore said.
“There's a pretty common consensus that Trump is going to run the economy into the red.”
Chinese stocks were similarly down at the open, with the blue-chip index last down 1.43% while losing 1%.
Hong Kong fell 1.74%.
Investors are closely watching China's economic recovery in 2025 after officials promised a raft of support measures to boost growth, although Trump's talk of tariffs of more than 60% on Chinese imports could represent a significant headwind.
“To avoid a more pronounced slowdown as domestic headwinds and external pressures are likely to mount, China will remain heavily dependent on policy support,” said Yingrui Wang, China emerging markets economist at AXA Investment Managers.
“With Donald Trump's return to the White House intensifying external risks and an already fragile domestic economy, the debt-deflation trap leading to a generational slump could be dangerously close if upcoming stimulus measures are delayed or misdirected.”
Elsewhere, South Korea fell 0.07%. The index was Asia's worst performer in 2024, losing more than 22% in dollar terms, partly due to the deepening political crisis.
DOLLAR SEPTEMBER
All that global uncertainty, along with expectations of fewer Fed rate cuts this year, had the safe-haven dollar on the front foot on Thursday.
The large interest rate differential between the US and other economies casts a shadow over the foreign exchange market, resulting in most currencies falling sharply against the dollar in 2024.
The dollar was up 0.3% in last trade at 157.43 yen, sending the Japanese currency to its lowest level in more than five months.
The euro jumped 0.06% higher to $1.0360 but was not far off a more than one-month low, while the pound weakened 0.03% to $1.2522.
Markets are now pricing in about 42 basis points of rate cuts from the Fed this year, compared to more than 100 bps from the European Central Bank and 60 bps from the Bank of England.
“We now expect the Fed to make only two 25 basis point cuts in 2025 by skipping cuts in January and May and instead cutting in March and possibly June,” said Eli Lee, chief investment strategist at Bank of Singapore.
Trading in US Treasuries was closed on Thursday due to a holiday in the Japanese market, but futures indicated rising yields. Yields rise when bond prices fall.
“We see further upward pressure on long-term US Treasury yields and have a 12-month 10Y UST yield forecast of 5.00%,” Lee said.
On the commodity front, oil prices rose sharply on Thursday, with futures up 0.56% to $75.06 a barrel. U.S. West Texas Intermediate crude rose 0.6% to $72.15.
trading 0.4% higher at $2,634.77 an ounce. The yellow metal had a banner year in 2024, rising more than 27% in its biggest annual gain since 2010.
