Asian stocks rose on Friday as they tried to recover from a slow start to 2025. The dollar remained steady, close to a two-year high against a basket of currencies. Investors are concerned about U.S. interest rates staying elevated for an extended period.
MSCI’s broadest index of Asia-Pacific shares outside Japan increased by 0.38%. South Korean stocks led this upward movement.
Despite this gain, the index, which rose nearly 8% in 2024, is set for a nearly 1% decline for the week. The Japanese markets are closed for the week.
Chinese stocks struggled to recover on Friday after a significant drop on Thursday. This decline raised concerns about China’s economy and the potential for a trade war when Donald Trump begins his presidency later this month.
The blue-chip CSI 300 Index in China fell by 0.21%, heading for its largest weekly drop in almost a year. Meanwhile, Hong Kong’s Hang Seng Index rose by 0.58%.
Long-term Chinese bond yields continued to decrease. Both 10-year and 30-year government bond yields fell by around 3 basis points, reaching new record lows.
Ben Bennett, an investment strategist at Legal and General Investment Management, noted that the beginning of the year has been challenging for equities. He mentioned that unusual events can occur in illiquid markets.
Bennett advised against making broad conclusions based on current performance. However, he acknowledged that a stronger dollar and higher bond yields would likely dampen sentiment moving forward. Equity investors are hoping for a change soon.
European stock markets were expected to open quietly, with Eurostoxx 50 futures down by 0.14%. German DAX futures and FTSE futures showed little change.
On Wall Street, U.S. stocks finished lower on Thursday. Despite initial gains, they could not maintain their upward trajectory. Tesla’s shares fell by 6.1% after the company reported its first annual decline in deliveries.
This negative sentiment followed a weak conclusion to 2024, which diminished a year-long rally. That rally had been driven by growth expectations linked to artificial intelligence, anticipated rate cuts from the Federal Reserve, and recent expectations of deregulation from the incoming Trump administration.
The Fed’s decision last month, which indicated fewer rate cuts than the market had expected, jolted investors. Additionally, concerns arose that Trump’s policies might lead to inflation. As a result, bond yields increased, which strengthened the dollar and negatively impacted stocks.
Vasu Menon, managing director of investment strategy at OCBC, commented that Trump’s pro-growth, pro-business agenda might benefit the U.S. economy. However, it could pose challenges for the global economy due to potential tariffs and a stronger dollar.
Thus, there is a sense of caution and anticipation in the markets, especially following robust investment performance over the past two years.
DOLLAR SUPREMACY
Recent data indicated a decrease in new applications for unemployment benefits. The number fell to an eight-month low of 211,000 last week, suggesting fewer layoffs at the end of 2024. This aligns with a healthy labor market and is encouraging for the U.S. economy.
Upcoming payroll and inflation data will be crucial for investors assessing the Fed’s approach to rate cuts.
Traders anticipate 44 basis points of easing this year, which is below the 50 basis points that the Fed projected in December.
Consequently, the dollar index, which tracks the U.S. currency against six others, reached 109.14. This figure is just below the two-year high of 109.54 achieved on Thursday. The index has risen by 7% in 2024 as traders recalibrated their interest rate expectations.
The euro suffered heavily against the dominant dollar. It dropped by 0.86% in the previous session, reaching a more than two-year low of $1.022475. On Friday, it stood at $1.0271, heading for a weekly decline of 1.6%, its worst performance since November.
Meanwhile, the yen strengthened slightly to 157.295 per dollar but remained close to its over five-month low of 158.09 from December. The yen fell by more than 10% last year, marking its fourth consecutive year of losses.
In commodities, oil prices edged higher due to optimism regarding China’s economy and fuel demand. This optimism followed President Xi Jinping’s pledge to promote economic growth.
Brent crude futures increased by 0.16% to $76.05 a barrel, while U.S. West Texas Intermediate crude rose by 0.18% to $73.25 a barrel.
Gold prices held steady at $2,656 per ounce after jumping 27% in 2024, marking the strongest annual performance since 2010.
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