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Economy

Economy

Asian stocks rise, dollar drifts as US rate cut bets rise

Passersby walk past an electric monitor displaying the Japanese yen exchange rate against the U.S. dollar outside a brokerage in Tokyo, Japan October 4, 2023. REUTERS/Issei Kato/file photo
Passersby walk past an electric monitor displaying the Japanese yen exchange rate against the U.S. d... Passersby walk past an electric monitor displaying the Japanese yen exchange rate against the U.S. dollar outside a brokerage in Tokyo, Japan October 4, 2023. REUTERS/Issei Kato/file photo
Passersby walk past an electric monitor displaying the Japanese yen exchange rate against the U.S. dollar outside a brokerage in Tokyo, Japan October 4, 2023. REUTERS/Issei Kato/file photo
Passersby walk past an electric monitor displaying the Japanese yen exchange rate against the U.S. d... Passersby walk past an electric monitor displaying the Japanese yen exchange rate against the U.S. dollar outside a brokerage in Tokyo, Japan October 4, 2023. REUTERS/Issei Kato/file photo

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Asian stocks rise, and the dollar drifts as US rate-cut bets rise. On Tuesday, Asian markets made a slow but steady ascent while the dollar hovered at a five-month low. This was because the United States’ inflation rate was falling, strengthening speculation that the Federal Reserve would reduce interest rates early next year.

In the aftermath of Houthi assaults on ships that affected global shipping and commerce, including the ongoing war between Israel and Gaza, oil prices were mixed after both benchmarks, Brent crude and U.S. West Texas Intermediate crude, climbed by 3% last week. This occurred as the conflict between Israel and Gaza continued to escalate.

Trading was light on the day after Christmas because some markets, including those in Australia, Hong Kong, Britain, and Germany, were closed for Boxing Day. Additionally, the holiday-shortened week is expected to witness minimal movements as well.

The MSCI broadest index of Asia-Pacific equities outside of Japan (.MIAPJ0000PUS) had a gain of 0.48% and is on track to achieve a return of over 2% this year. This comes after the index saw a decline of 20% in 2022.

The Japanese stock market’s Nikkei (.N225) index continued to be the top-performing primary Asian stock market in 2023, with an increase of 27% yearly. The S&P 500 E-mini futures showed a 0.15% increase in value.

The data announced on Friday indicated that prices in the United States declined in November for the first time in more than three and a half years, highlighting the economy’s resilience. Investors were still processing the information.

The price index for personal consumption expenditures (PCE), which measures inflation, decreased by 0.1% over the previous month.

“The markets could not have asked for better news from the continued easing of the core PCE deflator in November,” said Nicholas Chia, Asia macro strategist at Standard Chartered. “In a way, the markets could not have asked for better news.”

“Thin liquidity conditions are likely to exacerbate the so-called ‘Santa Claus rally’ in equities ahead of the turn of the year,” according to Chia.

It is common for the stock market to have a period of strength toward the year’s end, referred to as the “Santa Claus Rally.”

Investors in stocks have expressed their satisfaction with recent statements made by the Federal Reserve on the prospects for interest rates. Following its policy meeting on December 13, the Federal Reserve said it had reached the end of its tightening cycle and opened the door to the possibility of interest rate reductions shortly.

At the end of November, the probability of a rate decrease by the Federal Reserve of 25 basis points in March was just 21%. However, according to the CME FedWatch tool, the markets are now pricing in a 75% possibility of a rate cut from the Fed in 2013. Markets are also pricing a reduction in interest rates of more than 150 basis points for the following year.

“The Federal Reserve has aggressively changed its rhetoric in order to engineer a significant easing of financial conditions,” analysts from Citi have stated in a note.

“A combination of slower core inflation and rising recession concerns led Fed officials to shift rhetoric away from a commitment to fight inflation with higher-for-longer rates and toward reassuring markets that they will not ‘hang on’ to higher rates for too long.”

As a result of the decline in semiconductor shares, China stocks (.SSEC) had a decline of 0.47% in Asia. On the other hand, gaming stocks stabilized after several businesses declared their intention to buy back their shares. The Hang Seng Index (.HSI) in Hong Kong remained closed for trading.

The dollar index was trading at 101.61, not too far from the five-month low of 101.42 it reached on Friday. The activity on the currency market was modest due to the holiday’s decreased transaction volume. Even though the index has lost 1.8% for the year, it is on track to end its winning streak of two years.

The yen, on the other hand, remained unchanged at 142.27 per dollar. The possibility that the Bank of Japan (BOJ) will soon terminate its ultra-easy policies has contributed to the rise in the yen’s value during the past few weeks.

Against the dollar, the Asian currency has gained 4% so far this month, putting it on track to achieve gains for the second consecutive month. However, the yen has continued to lose 7.8 percent versus the dollar throughout the year.

The Governor of the Bank of Japan, Kazuo Ueda, stated on Monday that the probability of the central bank attaining its inflation target was “gradually rising,” and that the bank would consider modifying its policies if the odds of achieving the 2% objective sustainably increased “sufficiently.”

The price of a barrel of WTI crude in the United States increased by 0.33% to $73.80, while a barrel of Brent crude reached $79.33, a decrease of 0.08% on the day. Spot gold increased by 0.5%, reaching $2,064.02 per ounce.


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