Business Maverick

Business Maverick

Asia stocks dip, dollar steady as Fed bets cool: markets wrap

Asia stocks dip, dollar steady as Fed bets cool: markets wrap
Stock price information at the Euronext exchange in Paris.

Asian stocks fell on Tuesday, following losses on Wall Street amid concerns that aggressive bets on the Federal Reserve unwinding monetary tightening may be over-optimistic. 

An index of the region’s stocks was on pace for a third daily decline, with benchmarks in Hong Kong and Japan sliding the most. US futures also edged lower, following declines on Monday when the S&P 500 fell from the highest since March 2022. 

The yen steadied after initially whipsawing as Tokyo inflation data slowed more than expected. The development supported the Bank of Japan’s view that price pressures are weakening for now and its continued caution over a tightening of policy. Investors will also be monitoring a sale of 10-year Japanese government bonds today.

Treasuries were little changed in Asia after a fall in the previous session added nine basis points to the two-year yield. The dollar held a Monday rally, as did Bitcoin, which hovered near $42,000 after frenzied speculation in cryptocurrencies. 

Chinese stocks briefly trimmed losses after Caixin PMI services data outpaced estimates, accelerating its expansion in November. Key benchmarks remained firmly in the red as the beat wasn’t enough to dispel concerns over the economy. Investors see a lack of catalysts to drive the market out of the doldrums.  

“The economy has been pretty sluggish as this lack of confidence drags on,” Yan Wang, chief emerging markets and China strategist for Alpine Macro Inc, said about China on Bloomberg Television. “Going into the new year, the trajectory will not improve much if there is no major change,” in terms of official stimulus, he said.

US jobs data later in the week will help identify the prospect for a soft landing in the world’s largest economy as investors price in rate cuts in 2024. Nearly 125 basis points of easing are priced in through to next year’s December Fed meeting — equal to about five quarter-point cuts.  

“Markets are approaching the limits of what can plausibly be priced without attaching material odds of a recession in the near term,” Goldman Sachs Group Inc. strategists including Praveen Korapaty wrote.

US stocks are headed for a rocky end to the year, according to Morgan Stanley’s Michael Wilson. The strategist said December could bring “near-term volatility in both rates and equities” before more constructive seasonal trends as well as the “January effect” support equities next month.  

Volatile markets

The Fed’s next steps could help reignite volatility that has recently shown signs of anaemia. Technically “overbought” conditions and bullish positioning have left markets vulnerable to corrections after the historic rallies in both equities and Treasuries last month.  

“The biggest near-term risk for the markets could simply be that after a phenomenal one-month rally, a period of consolidation may be a necessary breather,” said Jason Draho at UBS Global Wealth Management. “A lot of good news is priced in, and investors seeing little imminent downside risk does make the markets vulnerable to even small disappointments.”

The percentage of S&P 500 stocks trading above their 50-day moving averages has surged to 84% — indicating broad participation during the recent rally, according to data compiled by Bespoke Investment Group. Meanwhile, the closely watched bull-bear spread from the American Association of Individual Investors survey recently showed the most-bullish stance for the group since July, nearing levels not seen since April 2021.

“All eyes will be on Friday’s monthly jobs report to see if it confirms the cooling trend we saw most of last month,” Chris Larkin at E*Trade from Morgan Stanley said. “If it doesn’t, it may renew concerns that the Fed’s 2024 pivot to rate cuts could be delayed.”

Read: Most Expect Their Investments to Do Better in 2024: MLIV Pulse

Oil steadied after a three-day loss as Saudi Arabia said recent cuts by OPEC+ would be honoured in full and could be extended. Gold also rebounded after Monday selling, when it initially touched a fresh record high.

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