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Asian stock markets ended Thursday lower, losing some of their previously gained positions. Amid the pre-holiday calm in Hong Kong, Australia and New Zealand, where stock exchanges were closed, market participants focused on the future of US monetary policy.
At the same time, the US dollar showed growth, accompanied by an increase in the yield of US Treasury bonds. Such changes occur in the context of a general slowdown in trading activity, typical for the end of the year.
Investors are closely monitoring the signals from the Federal Reserve. The latest statements by Fed Chairman Jerome Powell, made at the regulator's final meeting this year, changed the expectations of market participants. If earlier many hoped for a significant reduction in rates in 2024, now traders predict easing only by 2025, estimating a possible reduction of 35 basis points.
The current dynamics in the markets reflect a cautious approach of investors who are adjusting their strategies to the new economic reality. The influence of macroeconomic factors and signals from central banks continue to shape the behavior of traders, setting the tone for the markets ahead of the new year.
While the markets of the Asian region are experiencing temporary weakness, the main focus remains on the actions of the Federal Reserve, which could determine the course of the global economy in the coming months.
The return of the US dollar to the growth trajectory has become the latest challenge for the commodity and precious metals markets. The strengthening of the currency inevitably puts pressure on the price of gold and other dollar-denominated commodities, making them more difficult for investors to attract.
The yield on the 10-year US Treasury note showed a rise of 2.6 basis points, reaching 4.613%. In total, it has risen by 40 basis points so far this month, indicating growing interest in long-term instruments. The two-year yield also rose, reaching 4.3489%.
Economists and analysts are weighing the outlook for future Federal Reserve policy. Tom Porcelli, chief economist at PGIM Fixed Income, said that after December's signals of a muted rate cut, the Fed is likely to skip the January FOMC meeting to wait for more data.
"The Federal Reserve remains committed to the balance between controlling inflation and supporting employment, which will be key for markets next year," he added.
The dollar continues to show strong gains in the FX market. Amid a decline in other currencies, the dollar settled at a two-year high of 108.15 against a basket of global currencies, showing a monthly gain of more than 2%.
The Australian dollar and New Zealand dollar were among the hardest hit. The AUD fell 0.5% to $0.6238, while the NZD fell 0.58% to $0.5646. The euro slipped 0.18% to $1.0399. The Japanese yen, under pressure from a stronger dollar, settled near a five-month low of 157.35 per dollar.
As the year ends, markets continue to be influenced by the decisions of major central banks. Market participants are watching macroeconomic signals to assess how sustainable the economic recovery will be in the context of rising rates. Forecasts for the new year remain cautious, leaving room for maneuver and possible surprises.
The Japanese government intends to increase the volume of government bonds (JGB) to 172.3 trillion yen (about $1.1 trillion) in the next financial year. The move would be the first increase in issuance in four years, underscoring the government's readiness to step up fiscal support for the economy, Reuters reported, citing a draft government plan.
Despite the importance of the news, Japanese government bond yields remained virtually unchanged. However, yields rose slightly later in the day, following similar moves in the U.S. market.
The MSCI index, which tracks shares in the Asia-Pacific region excluding Japan, showed a slight decline of 0.1% on Thursday. However, the index maintained a solid weekly gain, approaching the 1.6% mark, thanks to positive sentiment on Wall Street at the start of the week.
Japan's decision to increase government bond issuance is related to the need to finance budget programs and strengthen economic resilience. At the same time, Asian markets continue to feel the impact of global macroeconomic factors, including the dynamics of the dollar, the Fed rates and volatility in commodity assets.
Amid these events, cautious optimism remains among investors despite local and global risks. Market participants are waiting for further signals from both the Japanese authorities and the world's largest economies.
Alibaba, the Chinese e-commerce giant, and South Korean supermarket chain E-Mart are in the final stages of talks to create a joint venture. According to sources close to the discussions, the partnership is valued at a whopping $4 billion and could be officially announced as early as this week.
E-Mart, known as South Korea's leading retail chain, and Alibaba are looking to join forces to strengthen their positions in the highly competitive market. However, the interlocutors warn that a final agreement may require further negotiations. Representatives of both companies have not yet provided comment.
The creation of the joint venture is aimed at combating powerful competitors such as South Korean Internet company Naver Corp and fast-growing Coupang Inc. Strong competition and growing market needs are forcing the companies to seek new formats of cooperation to improve their efficiency and increase market share.
Amid news of strengthening positions of key players in online retail, futures on the S&P 500 rose by 0.08%, while futures on the Nasdaq added 0.27%. These indicators reflect cautious optimism among investors despite ongoing global challenges.
Global stock indices (.MIWD00000PUS) have shown steady growth, posting gains of over 17% for the second year in a row. The main driver is the significant gains of the US markets. A particularly striking example was the boom in artificial intelligence stocks, which, combined with solid economic indicators in the US, attracted significant amounts of capital to the country's assets.
According to Vishnu Varathan, head of macroeconomic research at Mizuho Bank, global markets are showing confidence in the future. "It seems that market participants are preparing for a year of plenty," he said. At the same time, the strong position of US investors is not hindering the positive mood in other regions.
A combination of factors, such as cooperation between major corporations and sustainable economic growth, creates the basis for a continued global upswing in financial markets.
Japan's Nikkei index (.N225) added 0.95%, according to preliminary data, and is on track to end the year with an impressive 18% gain. This result underlines the resilience of the Japanese stock market, which has successfully coped with global economic challenges.
China's blue-chip CSI300 index (.CSI300) rose 0.08%, while the Shanghai Composite (.SSEC) added 0.14%. Both indices are on track for a more than 10% annual gain. This result was possible thanks to the active measures taken by the Chinese authorities to support the economy in recent months. Efforts to stimulate domestic demand and strengthen economic stability have borne fruit.
Bitcoin, one of the most popular cryptocurrencies, fell by 0.37%, fixing the current price at $98,071. This is a continuation of the correction after reaching a historical maximum above $100,000. The pressure on the cryptocurrency increased amid hawkish signals from the Federal Reserve, which led to a revision of investor expectations.
Brent crude futures rose by 0.08% to $73.64 per barrel, while American WTI crude added 0.1%, reaching $70.17 per barrel. Despite the modest increase, both indicators reflect stability in the oil market, which continues to respond to global macroeconomic factors.
Spot gold prices increased by 0.5%, reaching $2,626.19 per ounce. This points to growing investor interest in safe haven assets, which remains an important factor in the uncertain global markets.
2023 ends on a positive note for most key markets. The results of Japanese and Chinese indices, stability in commodities and significant fluctuations in the crypto market underline the difficult but successful nature of the outgoing year. Investors are closely monitoring new macroeconomic trends that will determine the dynamics of the coming 2024.
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