Asian shares race to four-month peak as Fed pivot rally rolls on

SYDNEY: Asian shares jumped to a four-month peak on Friday as sharp declines in the dollar and U.S. yields extended a Federal Reserve-fuelled rally, but pushback on rate cuts from central banks in Europe could deal a blow to the global pivot hopes.

Europe is also set to open higher, with EUROSTOXX 50 futures up 0.2% and FTSE futures gaining 0.3%. Both S&P 500 futures and Nasdaq futures edged 0.1% higher, each.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan was last up 0.9% after an earlier rally to the highest since early August met some resistance due to a turnaround in Chinese shares. It is up a solid 2.8% for the week.

Japan’s Nikkei rose 1%.

Chinese bluechips gave up earlier gains to be 0.3% lower and hit a fresh five-year trough. Hong Kong’s Hang Seng index, however, rebounded 2.2%, driven by a more than 3% jump in Chinese real estate firms on news that Beijing and Shanghai have relaxed home purchase restrictions.

Data from the world’s second-largest economy showed factory and retail sectors sped up in November, but some indicators missed expectations, suggesting the recovery is not solid yet. China’s central bank boosted liquidity injections but kept the interest rate unchanged when rolling over maturing medium-term policy loans.

Reuters, citing sources, reported that Chinese leaders agreed to run a budget deficit of 3% of gross domestic product in 2024, down from the 3.8% target for this year, suggesting Beijing wants to maintain fiscal discipline.

“Everyone is popping the corks now and celebrating that we’ve got the Fed pivot. But the Fed pivot happened two months ago… It has now got to the point where I think you need to be a little bit careful,” said Tony Sycamore, analyst at IG.

“I think we’re gonna have a nice drift higher in Asian equity markets into year end, but Japan could be an exception. And I don’t think I’d be touching any of the Chinese stocks at this point of time.”

On Wall Street, the Dow Jones climbed to a fresh all-time high and the S&P 500 and Nasdaq made new 2023 peaks, as markets wagered on a total of 150 basis points in monetary easing – the equivalent of six cuts – for the Fed next year.

Overnight, a host of Europe’s central banks stuck to plans to keep policy tight well into next year, dashing any hope that the Fed’s pivot towards rate cuts marked a global turning point.

The European Central Bank said policy easing was not even brought up in a two-day meeting, the Bank of England said rates would remain high for “an extended period,” and Norway’s central bank even hiked rates.

The euro jumped 1.1% overnight and the sterling surged 1.2% before holding mostly steady in Asia on Friday. That helped pressure an already frail U.S. dollar , which is down 1.9% for the week and hovered near a four-month low at 101.97 against its major peers.

British bond yields retraced steep falls on Thursday and Germany’s 10-year bond yield bounced off session lows. Treasuries are, however, still heading for the best week in over a year, with the benchmark 10-year yields down a whopping 30 basis points to below 4% for the first time since July.

Data also showed U.S. retail sales unexpectedly rebounded in November and jobless claims dipped, suggesting the economy is still too strong to justify the kind of rate cuts baked in next year, but markets were too jubilant to see that.

Treasuries steadied at the end of a stellar week, with the 10-year yields up 2 basis points to 3.9465%. On a weekly basis, they are down 29.8 basis points. Two-year yields also rose 2 bps to 4.4217%, but were down 31 bps for the week.

Oil prices extended their rally on Friday in opposition to the soft dollar after the International Energy Agency (IEA) lifted its oil demand forecast for next year.

U.S. crude rose 0.2% to $71.75 per barrel, after surging more than 3%, while Brent was also up 0.3% to $76.80 per barrel.

Spot gold was flat at $2,036.09 an ounce. – Reuters