Asian Stocks wedge higher, dollar steady amid elevated yields
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Asian equities rose on Tuesday as Chinese economic support measures buoyed sentiment, while the US Dollar held near a two-year high, supported by elevated Treasury yields. Investors remain focused on the Federal Reserve's 2025 policy trajectory, with fewer expected rate cuts reinforcing the Greenback’s strength and keeping commodities under pressure.
Asian Markets Rise Amid Chinese Economic Pledges
Asian stocks recorded gains in thin holiday trading, driven by fresh support from Chinese authorities aimed at bolstering economic recovery. Chinese indices extended their rally, with the CSI300 and Shanghai Composite each rising 0.9%, and the Hang Seng Index advancing 1.08%. Beijing pledged a record 3 trillion yuan ($411 billion) in special treasury bonds for 2025, alongside increased fiscal measures to stimulate consumption, including higher pensions and medical insurance subsidies.
Japanese equities lagged, with the Nikkei 225 slipping 0.24% amid concerns over the US review of Nippon Steel’s $15 billion bid for U.S. Steel. Shares of Nippon Steel gained 1.2% despite the geopolitical uncertainty.
Broad Asia-Pacific sentiment was positive, with the MSCI Asia-Pacific ex-Japan index climbing 0.44%, tracking Wall Street's overnight gains. However, risks remain, as Chinese economic momentum faces headwinds from real estate challenges and the potential for US-imposed tariffs under President-elect Donald Trump.
Fed Policy and US Dollar Dominance
The Federal Reserve’s hawkish stance for 2025 continues to drive market dynamics. Markets have priced in just 35 basis points of rate cuts next year, sending US Treasury yields to multi-month highs and bolstering the US Dollar.
The 10-year Treasury yield held steady at 4.5907%, near a seven-month peak, while the two-year yield was at 4.3427%. Elevated yields have supported the DXY Dollar Index, which remains at 108.14, its highest in two years.
The strong dollar weighed on other currencies:
EUR/USD eased 0.09% to 1.0395.
USD/JPY hovered near a five-month high of 156.99, prompting Japan’s Finance Minister Katsunobu Kato to reiterate Tokyo’s readiness to intervene in foreign exchange markets if needed.
Commodities Under Pressure
High bond yields and dollar strength pressured commodities:
Gold struggled near $2,618.10 per ounce, consolidating after slipping 1% last week.
Oil prices posted modest gains, with Brent crude futures up 0.5% to $72.99 a barrel and US WTI crude rising 0.46% to $69.56. The energy market was supported by thin trading and supply considerations.
Outlook
Asian markets are positioned for cautious gains as investors digest China’s economic stimulus and remain wary of global risks, including a potential US-China trade conflict and uncertainties surrounding Trump’s economic policies.
The Fed's hawkish trajectory is expected to sustain dollar strength, while commodities remain vulnerable to elevated yields and limited liquidity during the holiday-shortened week. Market participants will closely monitor developments in Chinese reforms, US tariff policies, and macroeconomic indicators in early 2025.
Asian Markets Rise Amid Chinese Economic Pledges
Asian stocks recorded gains in thin holiday trading, driven by fresh support from Chinese authorities aimed at bolstering economic recovery. Chinese indices extended their rally, with the CSI300 and Shanghai Composite each rising 0.9%, and the Hang Seng Index advancing 1.08%. Beijing pledged a record 3 trillion yuan ($411 billion) in special treasury bonds for 2025, alongside increased fiscal measures to stimulate consumption, including higher pensions and medical insurance subsidies.
Japanese equities lagged, with the Nikkei 225 slipping 0.24% amid concerns over the US review of Nippon Steel’s $15 billion bid for U.S. Steel. Shares of Nippon Steel gained 1.2% despite the geopolitical uncertainty.
Broad Asia-Pacific sentiment was positive, with the MSCI Asia-Pacific ex-Japan index climbing 0.44%, tracking Wall Street's overnight gains. However, risks remain, as Chinese economic momentum faces headwinds from real estate challenges and the potential for US-imposed tariffs under President-elect Donald Trump.
Fed Policy and US Dollar Dominance
The Federal Reserve’s hawkish stance for 2025 continues to drive market dynamics. Markets have priced in just 35 basis points of rate cuts next year, sending US Treasury yields to multi-month highs and bolstering the US Dollar.
The 10-year Treasury yield held steady at 4.5907%, near a seven-month peak, while the two-year yield was at 4.3427%. Elevated yields have supported the DXY Dollar Index, which remains at 108.14, its highest in two years.
The strong dollar weighed on other currencies:
EUR/USD eased 0.09% to 1.0395.
USD/JPY hovered near a five-month high of 156.99, prompting Japan’s Finance Minister Katsunobu Kato to reiterate Tokyo’s readiness to intervene in foreign exchange markets if needed.
Commodities Under Pressure
High bond yields and dollar strength pressured commodities:
Gold struggled near $2,618.10 per ounce, consolidating after slipping 1% last week.
Oil prices posted modest gains, with Brent crude futures up 0.5% to $72.99 a barrel and US WTI crude rising 0.46% to $69.56. The energy market was supported by thin trading and supply considerations.
Outlook
Asian markets are positioned for cautious gains as investors digest China’s economic stimulus and remain wary of global risks, including a potential US-China trade conflict and uncertainties surrounding Trump’s economic policies.
The Fed's hawkish trajectory is expected to sustain dollar strength, while commodities remain vulnerable to elevated yields and limited liquidity during the holiday-shortened week. Market participants will closely monitor developments in Chinese reforms, US tariff policies, and macroeconomic indicators in early 2025.