Asian markets surged on Wednesday amid a global rally fuelled by increasing optimism that major central banks will start cutting interest rates early next year.
The Hang Seng Index led the pack with gains of 1.7% in its first trading day after the Christmas and Boxing Day holidays, while Japan’s Nikkei and India’s Nifty also ended the day with gains of over 1%.
The rally in Asian indices meant that world stocks hit their highest levels since late 2022. MSCI’s world stock index touched a more than one-year high and is up 4.5% in December.
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Meanwhile, MSCI’s broadest index of Asia-Pacific shares outside Japan rose more than 1% to an over four-month high.
Tim Murray, a capital markets strategist in the multi-asset division at T. Rowe Price, noted much of the year had been spent in fear that rate hikes would drag the economy into recession.
“Happily, that did not happen, and a more dovish Fed means the likelihood of recession in 2024 has fallen considerably,” he said.
Investor sentiment in Asia was also buoyed by China’s November industrial profits, which saw double-digit gains on the back of gains in overall manufacturing.
Data showed, however, that soft demand continued to constrain business growth expectations, emboldening calls for more macro policy support.
Chinese blue chips eked out a marginal gain of 0.35%.
“We still have strong equity markets and that is likely to hold through to New Year,” Jens Magnusson, SEB chief economist said.
Good times ahead for Asian FX
Most emerging Asian currencies also gained on Wednesday, taking cues from a weaker US dollar.
Investors continue to bet that major global central banks, led by the Federal Reserve, could begin easing rates next year.
Market pricing now shows a more than 80% chance the Fed is likely to begin cutting rates next March, according to the CME FedWatch tool, with over 150 basis points of easing priced in for all of 2024.
The yield advantage that the United States has enjoyed for much of 2023 looks set to erode once the Fed starts cutting rates, said KCM Trade analyst Tim Waterer.
“The USD is being shunned by traders and this is allowing emerging market currencies to shine,” Waterer said.
Thailand’s baht strengthened 0.5% to its highest since Aug 3.
The Indonesian rupiah, one of the best-performing currencies in the region this year, rose 0.4% to a near one-month high, while the Taiwanese dollar strengthened 0.6% to its highest since July 14.
Indonesian stocks also gained 0.4% to hit their highest level since September 2022, while Taiwanese stocks advanced 0.8% to their highest since March 2022.
Euro shining, yen weaker
While the dollar remained on the back foot and languished near a five-month low against a basket of currencies, the euro touched its highest level since August, at $1.1055.
A risk-on mood in world markets lifted the euro to more than four-month peaks against the dollar, while oil prices slipped as some major shippers returned to the Red Sea — an area disrupted after Yemen’s Houthi militant group began targeting vessels earlier this month.
Maersk shares fell more than 4.5%, and other shipping stocks fell, giving back part of this month’s gains fuelled by expectations that a Red Sea traffic halt could boost rates.
Meanwhile, the dollar still was 0.1% firmer against the yen at 142.51 following the release of minutes from a Bank of Japan policy meeting earlier this month.
BOJ policymakers remain divided over if, and when, the central bank should move away from its ultra-loose monetary stance, the minutes show.
Key figures
Tokyo – Nikkei 225 > UP 1.13% at 33,681.24 (close)
Hong Kong – Hang Seng Index > UP 1.74% at 16,624.84 (close)
Shanghai – Composite > UP 0.54% at 2,914.61 (close)
London – FTSE 100 > UP 0.53% at 7,738.01 (1222 GMT)
New York – Dow > UP 0.43% at 37,545.33 (Tuesday close)
- Reuters, with additional editing by Vishakha Saxena
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