A recent high-profile meeting in Beijing failed to boost Chinese stock markets, amid concerns of renewed trade tensions with the U.S. Meanwhile, global interest rate cuts have strengthened the U.S. dollar, while long-term Treasury yields climbed significantly. Asian stocks saw declines, and Wall Street closed lower as investors took profits. Oil prices dipped slightly but are poised for weekly gains, while gold prices increased, remaining below record levels.
Beijing Meeting Fails to Inspire Stock Markets
A high-level gathering in Beijing aimed at increasing debt and encouraging consumer spending has not succeeded in uplifting the Chinese stock markets. With Donald Trump’s return to power, policymakers are bracing for potential new trade tensions with the United States.
Global Rate Cuts Impact Currency Trends
This week has been marked by interest rate reductions across Switzerland, Canada, and the European Central Bank, which has positively influenced the U.S. dollar against other currencies.
Additionally, there has been a notable rise in long-term Treasury yields. While markets expect the Federal Reserve to cut interest rates in the upcoming week, there are doubts about a cautious approach for the following year. Futures predict minimal chances of a rate change in January, with only two additional cuts anticipated, potentially lowering rates to 3.8% by the end of 2025.
The 30-year yields have surged by 22 basis points since the start of the week, marking their most significant increase since October 2023.
In Europe, rates are projected to settle at 1.75%, down from the current 3%, while Canadian rates are expected to decrease from 3.25% to 2.7% in the same timeframe.
The MSCI index for Asia-Pacific stocks, excluding Japan, experienced a 0.5% drop on Friday morning. The Japanese Nikkei declined by 1% but remains on track for a weekly gain of 0.9%. Chinese blue chip stocks fell by 0.7%, and the Hong Kong market saw a 1.2% loss following the Central Economic Work Conference, which did not provide new stimulus details. A sub-index of Chinese real estate firms listed in Hong Kong fell by 2.6%.
According to Jian Chang, the chief economist for China at Barclays, the CEWC has likely let the markets down, especially after a Politburo statement on December 9 had raised expectations for more aggressive easing measures. “We continue to believe that a progressive and reactive policy is more likely than a preventive and ‘bazooka’ policy,” he noted.
On Wall Street, stocks closed lower as investors opted to take profits following the Nasdaq’s impressive rise to record levels. However, Nasdaq futures saw a 0.4% increase in Asia.
Producer price data from the U.S. showed a slight uptick in November (0.4%), primarily driven by a dramatic 50% increase in egg prices. The core index was softer, prompting Goldman Sachs to adjust its forecasts for the Fed’s favored inflation measure, the core personal consumption expenditures index, which is due next week, to a monthly rise of 0.13%.
In the foreign exchange arena, the dollar is poised for a 1% weekly increase against its counterparts. It gained 1.8% against the Japanese yen this week as markets lowered the probability of a Bank of Japan rate hike next week to just 22%. According to sources, the BOJ seems inclined to maintain current rates.
The dollar also climbed 1.6% against the Swiss franc to 0.8919, approaching a five-month peak of 0.8957, following an unexpected 50 basis point rate cut by the Swiss National Bank.
Although Treasuries remained stable on Friday, they are heading towards considerable weekly losses across the board. The two-year yield increased by 9 basis points to 4.1906%, while the benchmark ten-year yield rose by 17 basis points to 4.3219%.
Oil prices experienced a slight dip on Friday but are set to mark substantial weekly gains after the European Union enacted new sanctions threatening Russian oil flows. West Texas Intermediate (WTI) crude fell by 0.1% to $69.95 a barrel, though it has risen by 4% this week.
Gold prices increased by 2% this week, reaching $2,690.21 an ounce, still below its record of $2,790.