SINGAPORE:Asian stocks fell broadly on Thursday, while longer-dated US bond yields rose alongside the dollar as investors assessed the monetary policy and inflation outlook in the world's largest economy.
Bitcoin steadied above $90,000 after surpassing that level in the previous session, boosted by Donald Trump’s return to the White House and the view that his administration will be a boon for cryptocurrencies. The world’s largest cryptocurrency last traded 1.6% higher at $90,067, having soared more than 30% on a two-week rolling basis.
In the broader market, traders responded to a US inflation print that met expectations by ramping up bets on a Federal Reserve rate cut next month, though the monetary policy outlook for 2025 and beyond remains uncertain due to Trump's return to office. Trump's plans for lower taxes and higher tariffs are expected to stoke inflation, potentially reducing the Fed’s scope to ease interest rates, which supports the dollar.
Edison Research also projected on Wednesday that the Republican Party will control both houses of Congress when the President-elect takes office in January, enabling Trump to pursue his agenda largely unhindered.
Uncertainty over potentially larger US deficits and persistent inflation was reflected in longer-dated US bond yields, which rose in Asia trade on Thursday. The benchmark 10-year Treasury yield peaked at 4.483%, according to LSEG data, its highest since July 1. US stocks ended mixed on Wednesday after the latest inflation data supported bets that the Federal Reserve will cut interest rates in December.
The 30-year yield hovered near a five-month peak and last stood at 4.6505%. "Speculation about what Trump might do on the domestic policy and trade front are unlikely to be featured in the Fed's December projections. This will change as the first policies are being rolled out," said Boris Kovacevic, global macro strategist at Convera. "The actual effect of tariff increases and tax cuts will mostly be felt after 2025 as both the implementation and transmission to the real economy take time. This will give the Fed some time to change its reaction function accordingly." On the shorter end of the curve, the two-year yield, which typically reflects near-term rate expectations, ticked up 3 basis points (bps) to 4.3153%. Markets are now pricing in an 83% chance of a 25 bps rate cut from the Fed next month, up from about 59% a day ago, according to the CME FedWatch tool. However, expectations of Fed cuts next year have been pared back following Trump's election victory last week.
The dollar rode longer-dated Treasury yields higher on Thursday, ignoring rising bets of a Fed cut in December, which would typically be negative for the currency. The greenback pushed the euro to a one-year low of $1.0534 and broke above the 156-yen level in the Asian session. The dollar index peaked at a one-year high of 106.77.
The Australian dollar fell 0.33% to $0.6464, further pressured by a downside surprise on domestic employment.
China Angst Shares in Europe looked set for a steady open, contrasting with declines in Asia. EUROSTOXX 50 futures ticked up 0.04%, while FTSE futures added 0.02%. Nasdaq futures fell 0.18%, and S&P 500 futures eased 0.1%.
MSCI's broadest index of Asia-Pacific shares outside Japan last traded 0.63% lower, paring slight gains from earlier in the session. Chinese stocks fell as they struggled to make headway. The mainland CSI300 blue-chip index fell 0.92%, while the Shanghai Composite Index lost 0.96%. Hong Kong's Hang Seng Index slid 1.5%.
Investors were unimpressed by Beijing’s latest support measures to shore up China's ailing economy after the finance ministry unveiled tax incentives on home and land transactions on Wednesday. China’s property market remains in a prolonged downturn since 2021 and is a major drag on the world’s second-largest economy.
"If you're considering buying a house or in the market for one, it helps, certainly. But it's not going to change the situation itself," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. "It's not going to galvanize a lot of people to start (buying) homes. The inventory overhang is still there." In line with the declines across Asia, Japan's Nikkei erased early gains to last trade 0.11% lower.— Reuters
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