New year gets off to a weak start as traders eye rate cuts
Traders head into the new year optimistic the Federal Reserve will deliver a series of interest rate cuts that will boost equities
Hong Kong – Asian markets slipped Tuesday as most traders returned from the New Year break looking forward to a 2024 that is expected to see a series of Federal Reserve interest rate cuts, but to also be full of economic and political uncertainty.
After a blockbuster run in the past two months, Wall Street stuttered last week, though analysts are hopeful for another surge as US monetary policy eases.
The next few days will provide fresh insight into the outlook for rates, with the release of minutes from the Fed’s December meeting, followed by jobs creation data.
Indications from the bank that it would cut rates three times next year have lit a fuse under equities with inflation and recession fears giving way to hopes for a strong period ahead.
“There remains an increasing belief that Fed rate cuts, which have bullishly marked all capital market trends in the last eight weeks, are still fully ingrained in stock market sentiment,” said SPI Asset Management’s Stephen Innes.
“While a stronger-than-expected jobs report could shake this conviction, a reversal would require a resurgence in realised inflation, triggering a significantly more assertive hawkish stance from (Fed boss Jerome) Powell and other key figures to discourage March or May rate cuts bets.”
He added that there was a question on how investors would reconcile the difference between market expectations of 150 basis points of cuts and the Fed’s forecast of 75.
Despite the upbeat outlook on rates, Asian markets started the year with little fanfare, with Hong Kong and Shanghai extending their 2023 losses.
There was not much of a lift from a speech in which Chinese President Xi Jinping said the economy had become “more resilient and dynamic”.
Observers warned that while Beijing has pledged a series of measures to kickstart growth, much more was needed to instil confidence, particularly regarding the property sector.
There were also losses in Seoul, Singapore, Taipei and Jakarta, though Sydney and Manila edged up.
Tokyo was closed for a holiday though investors are keeping an eye on developments in Japan, a day after a huge quake that Prime Minister Fumio Kishida said caused “extensive” damage and numerous casualties.
All tsunami warnings from that quake were lifted on Tuesday.
Oil prices jumped more than one percent after Iran dispatched a warship to the Red Sea in response to the US Navy’s destruction of three Houthi boats.
Tehran’s move comes with tensions still high in the waterway, where the Yemen rebels have launched attacks on several international container ships, causing some firms to stop using it and fuelling worries about supplies.
However, a number of shipping companies have resumed transit following efforts by a US-led naval coalition to police the maritime route.
– Key figures around 0230 GMT –
Hong Kong – Hang Seng Index: DOWN 1.2 percent at 16,838.94
Shanghai – Composite: DOWN 0.1 percent at 2,972.45
Tokyo – Nikkei 225: Closed for a holiday
Dollar/yen: UP at 141.38 yen from 141.01 yen
Euro/dollar: DOWN at $1.1029 from $1.1040
Pound/dollar: DOWN at $1.2722 from $1.2738
Euro/pound: UP at 86.68 pence from 86.63 pence
West Texas Intermediate: UP 1.3 percent at $72.60 per barrel
Brent North Sea Crude: UP 1.4 percent at $78.09 per barrel
New York – Dow: DOWN 0.1 percent at 37,689.54 (close)
London – FTSE 100: UP 0.1 percent at 7,733.24 (close)