(Bloomberg) — US equity futures edged higher while the dollar extended losses as trading resumed after the Christmas holiday amid investor expectations for earlier and deep interest rate cuts next year.
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Stocks in Asia were mixed in a thin trading session with markets including Hong Kong, New Zealand and Australia shut. Emerging Asian currencies rose, with South Korea’s won and Taiwan dollar leading gains against a weak dollar that fell to its lowest level in almost five months.
Some on Wall Street are positioning for further stock gains ahead as the session kicked off the start of the “Santa Claus rally” — a seasonal trend where equities tend to climb into the first few days of the new year. The S&P 500 notched an eight-week winning run on Friday — the longest in more than five years on signs price pressures in the US were easing. Ten-year US Treasury yields slid two basis points to 3.88%.
“As for emerging markets in Asia, ‘silent night’ says much, given that there isn’t particularly inspired trading, with Wall Street equivocating ahead of Christmas,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank. “It looks like a case of averting the China drag and hanging on to earlier Santa rallies being the best case for Boxing day – boxing in risks.”
Stocks fell in mainland China, with the benchmark CSI 300 Index headed for its first drop in four sessions, as investor sentiment remains weak even after the authorities softened their stance following a move last week to tighten curbs on the videogame industry.
Elsewhere, Singapore dollar was little changed after core inflation edged lower in November, giving the central bank room to extend its monetary-policy pause next month to support the economy.
Japan’s auction of two-year sovereign debt saw tepid investor appetite, sending a gauge of demand to the weakest in a year, amid speculation the central bank will end negative interest rates in 2024. Its labor market remained relatively tight in November, keeping pressure on employers to boost wages in order to fill positions.
The benchmark Topix index traded within tight ranges after Bank of Japan Governor Kazuo Ueda’s speech on Monday that suggested he’s in no hurry to end the ultra-easy monetary policy.
“With the Nikkei 225 at high levels, year-end selling to lock in profits and losses is likely to weigh on the upside,” says Hideyuki Ishiguro, senior strategist at Nomura Asset Management.
In the corporate world, Chinese gaming shares outperformed the benchmark after a number of companies announced plans to repurchase their shares following news of the latest government curbs on the sector. Cathie Wood last week made her first purchase of shares in LY Corp. in over a year, indicating a possible shift toward more positive sentiment on the operator of Yahoo! Japan and popular messaging app Line.
Iron ore futures hit $140 a ton, highest in 18 months as traders keep a close eye on China’s steel outlook for the next year. Oil rose slightly after posting the largest weekly gain in more than two months, with shipping disruptions in the Red Sea in focus after a spate of Houthi attacks against vessels in the vital waterway.
Geopolitical tensions still remain front of investors minds into the new year as tensions in the Middle East look set to increase. Iranian President Ebrahim Raisi said Israel will pay a price for killing a senior commander of its Revolutionary Guard in air strike in Damascus on Monday. The US accused Iran at the weekend of an attack on a tanker in the Indian Ocean.
READ: Israel Sees Defense Spending Climbing $8 Billion as War Rages
US Growth Resilience
Global markets have been buoyed in recent months as traders bet major central banks including the Federal Reserve will aggressively cut interest rates next year as inflation falls. Bond yields have tumbled while the S&P 500 is nearing a fresh record.
Data released last week showed signs of resilience in US growth while the Fed’s preferred underlying inflation metric barely rose in November. Additional reports Friday showed consumers were also gaining conviction that inflation in the world’s largest economy was on the right track despite a bumpy housing market recovery.
That helped cement investor expectations for earlier and deeper interest rate cuts next year, despite pushback from several Fed policymakers. Swaps traders are betting interest rates will be eased by more than 150 basis points in 2024, double the Fed’s forecast.
Read more: Fed’s Preferred Inflation Gauges Cool, Reinforcing Rate-Cut Tilt
Key events this week:
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BOJ releases summery of opinions from December meeting, Wednesday
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China industrial profits, Wednesday
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Norway retail sales, Wednesday
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Japan industrial production, Thursday
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South Korea industrial production, Thursday
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Thailand trade, Thursday
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Mexico unemployment, Thursday
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Bank of Portugal releases quarterly report on banking system, Thursday
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South Korea CPI, Friday
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Spain CPI, Friday
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UK nationwide house prices, Friday
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Brazil unemployment, Friday
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Chile unemployment, Friday
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Colombia unemployment, Friday
Some moves in major markets:
Stocks
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S&P 500 futures rose 0.1% as of 6:30 a.m. London time
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The Shanghai Composite fell 0.7%
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Nasdaq 100 futures rose 0.3%
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Australia’s S&P/ASX 200 was little changed
Currencies
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The Bloomberg Dollar Spot Index fell 0.1%
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The euro rose 0.2% to $1.1025
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The Japanese yen was little changed at 142.25 per dollar
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The offshore yuan was little changed at 7.1467 per dollar
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The Australian dollar rose 0.3% to $0.6816
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The British pound rose 0.1% to $1.2707
Cryptocurrencies
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Bitcoin fell 2% to $42,674.63
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Ether fell 1.9% to $2,229.68
Bonds
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The yield on 10-year Treasuries declined two basis points to 3.88%
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Japan’s 10-year yield advanced two basis points to 0.630%
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Australia’s 10-year yield was unchanged at 4.01%
Commodities
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West Texas Intermediate crude rose 0.3% to $73.75 a barrel
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Spot gold rose 0.5% to $2,064.35 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Akemi Terukina.
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