SINGAPORE: Asian stocks began the year on a dour note on Thursday as they struggled for traction after a jittery close to 2024, while the US dollar held steady and investor sentiment stayed 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 equities, as uncertainty over the policies of incoming US President Trump and a more hawkish Federal Reserve outlook looked set to dominate market rhetoric for now.
While global shares closed out 2024 with a strong yearly gain of nearly 16%, they logged a monthly loss of more than 2% in December.
The same was true for Asia-Pacific shares outside Japan, which slid 1.2% in December but recorded a gain of more than 7% for 2024. The index was last down 0.58% during Thursday’s Asian session, with volume thinned due to a trading holiday in Japan.
However, stock futures pointed to a positive opening for Europe and Wall Street. EUROSTOXX 50 futures gained 0.74%, while FTSE futures ticked 0.05% higher. While S&P 500 futures edged 0.48% higher, and Nasdaq futures advanced 0.67%.
"I think we're now in a bit of a 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 Jan. 20 for his second term.
"It's very unusual for stocks not to get a positive December... and that worries me a little bit because when markets don't go up at times like this, when they should be going up, it generally means that there are other concerns," Sycamore added.
"There's a pretty common consensus out there that Trump's going to run the economy red hot."
Chinese stocks were hit hard, with the blue-chip index last down 2.65%, while the Shanghai Composite lost 2.36%. Hong Kong's Hang Seng Index slid 2.15%.
Investors are closely monitoring China's economic recovery in 2025 after officials pledged a slew of support measures to promote growth, though Trump’s talk of tariffs exceeding 60% on Chinese imports could pose significant headwinds.
"To avoid a more material slowdown as domestic obstacles and external pressures mount, China will remain heavily reliant on policy support," said Yingrui Wang, China emerging market economist at AXA Investment Managers.
"With Donald Trump's return to the White House amplifying external risks and an already fragile domestic economy, a debt-deflation trap leading to a generational downturn could be perilously close if upcoming stimulus measures are delayed or misdirected."
Elsewhere, South Korea's KOSPI was flat. The index was Asia’s worst performer in 2024, losing more than 22% in dollar terms due in part to a deepening political crisis.
All that global uncertainty, along with expectations of fewer Fed interest rate cuts this year, left the safe-haven dollar hovering near a two-year peak on Thursday.
A wide interest rate difference between the US and other economies has cast a shadow over the foreign exchange market, resulting in most currencies declining sharply against the dollar in 2024.
The dollar rose 0.14% to 157.18 yen, pushing the Japanese currency toward its lowest level in more than five months. The euro ticked 0.08% higher to $1.03615 but remained close to a one-month low. — Reuters
Markets are now pricing in about 42 basis points worth of rate cuts from the Fed this year, compared with more than 100 bps from the European Central Bank and 60 bps from the Bank of England.
"We now expect the Fed to make just two 25 bps 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 of US Treasuries was closed on Thursday due to the Japan market holiday, but futures were little changed. "We see further upward pressure on long-dated US Treasury yields and have a 12-month 10-year yield forecast of 5.00%," said Lee.
In commodities, oil prices edged higher on Thursday. Brent crude futures rose 0.25% to $74.83 a barrel, while US West Texas Intermediate crude gained 0.28% to $71.92.
Spot gold traded 0.34% higher at $2,632.68 an ounce. Gold had a banner year in 2024, surging more than 27% for its largest annual gain since 2010.
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