Asia’s major stock indexes slipped into the red on Friday as an air of uncertainty dominated trading floors, with investors wondering when the US Fed will turn around its interest rate push and when China will roll out powerful enough stimulus to spark a meaningful recovery.
Shares across the region edged lower, starting the last month of the year on a weak note after a recent rally, with Japan’s Nikkei stock average posting its first weekly drop in five.
Tokyo tech shares slumped on elevated bond yields after economic data provided more clues that the US Federal Reserve could end rate hikes. Technology companies tend to be highly leveraged, making them sensitive to changes in interest rates.
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The Nikkei ended the day 0.17% lower at 33,431.51, and lost 0.58% this week. Technology was the only sector to decline in the Nikkei index. The broader, less tech-centric Topix rose 0.32% but slumped 0.35% for the week.
Japan’s long-term yields added 3.5 basis points to 0.705% on Friday, tracking an overnight rebound in US Treasury yields, following three days of steep declines.
Hong Kong stocks fell, with the Hang Seng Index on track for its worst week in two months, as China factory activity data shows the economy remains wobbly.
The benchmark declined 1.25%, or 212.58 points, to 16,830.30, and was poised to lose 3.6% for the week, its biggest weekly loss since mid-August.
The Caixin/S&P Global manufacturing purchasing managers’ index (PMI) unexpectedly rose to 50.7 in November from a 49.5 reading in October, data showed on Friday. But that was in contrast to the official PMI which fell to 49.4 on Thursday. The 50-point mark separates growth from contraction.
China’s bluechip CSI300 Index fell 0.38%, while the Shanghai Composite Index edged up 0.07%, or 1.96 points, to 3,031.64. The Shenzhen Composite Index on China’s second exchange rose 0.25%, or 4.77 points, to 1,887.98.
Soft Euro Inflation
Elsewhere across the region, in earlier trade, Sydney, Seoul and Jakarta were all down while Singapore, Shanghai, Mumbai, Taipei, Manila, Bangkok and Wellington rose.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.4% after a surge of 7.3% last month, the most since January.
Europe, however, was set to open higher, helped by wagers of early and aggressive rate cuts by the European Central Bank after surprisingly soft inflation numbers. Eurostoxx 50 futures rose 0.4% and FTSE futures gained 0.6%.
Oil prices, which slid more than 2% overnight as output cuts by OPEC+ producers underwhelmed, remained subdued even as Israel’s military said it has resumed combat against Hamas in the Gaza Strip, after a seven-day truce, raising the prospect of renewed violence in the Middle East.
Brent crude futures slipped 0.2% at $80.67 a barrel while US West Texas Intermediate futures was little changed at $75.94 a barrel.
Overnight, data showed that both US and European inflation are cooling as desired. Benign data on US inflation reinforced market expectations for about 115 basis points in rate cuts from the Federal Reserve next year, with a first move fully priced in for May.
Traders Wait on Fed
The major surprise was with euro zone inflation, which missed forecasts by a large margin, triggering a slide in the euro and prompting markets to price in rate cuts of about 110 basis points next year, commencing as early as April.
Traders are now waiting for Fed Chair Jerome Powell’s Q&A appearance on Friday, with bulls betting the central bank chief will accommodate market wishes.
Declining interest rates in Europe and the US would be good news for Asia, greatly easing the pressure on emerging market currencies. Investors are turning more bullish on Asian currencies, a Reuters poll found.
The dollar index was on the back foot at 103.32 on Friday after jumping 0.6% overnight, supported by a sliding euro on ECB’s rate cut expectations. It fell 3% for November, the worst in a year.
US Treasuries also eased a little after the best month since 2011. The yield on 10-year Treasury notes slipped 2 basis points in Asia to 4.3320%, on top of a plunge of 52.2 basis points for the month.
Two-year Treasury yields fell 4 basis points to 4.6771%. Gold prices were 0.26% higher at $2,041.29 per ounce.
Key figures
Tokyo – Nikkei 225 < DOWN 0.17% at 33,431.51 (close)
Hong Kong – Hang Seng Index < DOWN 1.25% at 16,830.30 (close)
Shanghai – Composite > UP 0.07% at 3,031.64 (close)
London – FTSE 100 > UP 0.80% at 7,513.65 (0935 GMT)
New York – Dow > UP 1.47% at 35,950.89 (Thursday close)
- Reuters with additional editing by Sean O’Meara
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