Asian shares weaken, dollar rises on US Treasury sell-off

Source: Reuters.

European stocks were mixed shortly after trading opened, while US futures were slightly higher. The pound fell after data showed the British economy contracted in October.

Both China's blue chip stocks and Hong Kong's Hang Seng lost more than 2% after the Central Economic Work Conference did not offer details on new stimulus measures.

Top policymakers in Beijing pledged to increase debt and lift consumption but failed to boost Chinese equities.

Authorities are preparing for increased trade tensions with the US as Donald Trump's potential return to power approaches, dampening growth expectations and contributing to an 18-basis-point weekly decline in Chinese bond yields, the largest since April 2018. (Bond yields move inversely to prices.)

Jian Chang, chief China economist at Barclays, said the CEWC likely disappointed markets as a 9 December Politburo statement had raised hopes of more aggressive easing.

"We maintain our view that incremental and reactive policy is more likely than pre-emptive and 'bazooka' policy," she said.

A week of rate cuts from Switzerland, Canada and the European Central Bank has burnished the appeal of relatively higher US interest rates and has boosted the dollar.

The dollar index, which is 1% higher this week against its peers, was up 0.15% on Friday at 107.12, around its highest in more than two weeks.

The 10-year benchmark bond yield rose 17 bps this week while 30-year yields surged 22 bps, the biggest weekly rise in more than a year. [FRX/]

The Indonesian rupiah hit a four-month low on Friday and its central bank had to intervene repeatedly to shore up the currency. India's central bank was seen selling dollars via state banks to support the rupee, which is near record lows.

Europe's STOXX 600 equity index fell 0.1% on Friday after slipping slightly the previous day. Britain's FTSE 100 rose 0.14% and Germany's DAX climbed 0.36%.

Futures for the US S&P 500 rose 0.28%. The index closed slightly lower on Thursday, 12 December 2024 after rising to a record high on 6 December on optimism about the second Trump presidency, which looks set to focus on deregulation and tax cuts.

Fed rate cut?

Markets are still confident about a rate cut from the Federal Reserve next week. Data on US producer prices came out a little hotter than expected in November due to a 50% jump in egg prices.

"In my opinion, there’s enough concern on inflation not to cut next week, but the Fed doesn’t like to provide big surprises to markets this close to the event," said Jim Reid at Deutsche Bank.

However, futures imply little chance of a move in January, with just two more easings priced in to 3.8% by end-2025.

Britain's pound fell 0.32% to $1.2632 on Friday, December 13 2024 after data showed the economy unexpectedly contracted in October in a blow to the Labour government, which has pledged to boost growth.

The dollar was up 0.25% against the Japanese yen at 153.03 yen. It has risen around 1.7% this week as markets scaled back the chance of a rate hike from the Bank of Japan next week to just 22%. Sources said the BOJ is leaning towards keeping rates steady.

Oil prices ticked higher on Friday but set for a weekly gain of around 3% [O/R]. Gold gained 1.7% this week to $2,678.13 per ounce, still some distance from its record of $2,790.