Shares across Asia saw a notable decline on Friday, following a day of U.S. market closure in observance of a National Day of Mourning for former President Jimmy Carter. This dip in regional markets is largely attributed to growing concerns over the U.S. Federal Reserve’s interest rate policies and the potential impacts of economic decisions under the incoming administration of President-elect Donald Trump.
U.S. futures were down, while oil prices saw an uptick, indicating mixed investor sentiment. Analysts attributed the broad market decline to weakening confidence in the likelihood of further interest rate cuts by the Federal Reserve. This sentiment stems from recent data suggesting unexpected strength in the U.S. economy, which has caused concern that the central bank may slow the pace of rate cuts.
Minutes from a Federal Reserve meeting held December 17-18 revealed that officials anticipated reducing the pace of interest rate cuts in response to persistently high inflation and the possibility of increased tariffs under the Trump administration. The minutes also highlighted the uncertain future of the U.S. economy, particularly due to potential shifts in trade, immigration, fiscal, and regulatory policies under the new government.
Market attention remained focused on an upcoming U.S. jobs report due later from the Labor Department, which is expected to provide further insight into the economy’s trajectory. Tan Jing Yi of Mizuho Bank noted in a commentary that market players are increasingly concerned that the Fed may maintain a more restrictive policy stance than what is needed to support risk-taking behaviors in the market.
Investor unease is compounded by the uncertainties surrounding Trump’s tariff policies. While increased tariffs on Chinese goods appear likely, the scope of tariffs on other nations remains unclear, leaving global investors cautious as the January 20 inauguration date approaches.
In a report, ANZ Research echoed these concerns, emphasizing the unknown factors regarding the tariffs’ geographical spread and their long-term impact on regional economies.
Regional stock markets reflected these uncertainties. In Tokyo, the Nikkei 225 index dropped 0.9%, closing at 39,236.86. Meanwhile, South Korea’s Kospi index held steady at 2,521.96, showing no significant change. Chinese markets also saw continued losses, with Hong Kong’s Hang Seng index falling 0.5% to 19,142.98, and the Shanghai Composite index declining by 0.5% to 3,196.01. Australia’s S&P/ASX 200 similarly lost 0.5%, closing at 8,292.10.
Markets in Bangkok and India showed mixed results, with the SET index largely unchanged, while India’s Sensex fell by 0.4%. Taiwan’s Taiex index saw a slight gain of 0.2%.
Despite market fluctuations, the U.S. bond market remained open on Thursday, with yields maintaining a relatively steady position following recent volatility. The yield on the 10-year U.S. Treasury note was at 4.69%, slightly down from the previous day’s high of 4.70%. This level marked the highest point since April, highlighting concerns about rising borrowing costs. Higher yields often dampen stock market performance as they make borrowing more expensive and attract investors to bonds rather than equities.
The U.S. economy’s robust performance, coupled with fears that Trump’s policies might fuel inflationary pressures, has led to climbing yields, adding to the volatility in the markets.
Across the Atlantic, European markets saw varied results. London’s FTSE 100 gained 0.8%, closing at 8,319.69, as the British pound weakened against the U.S. dollar, benefiting U.K. exporters. Meanwhile, Germany’s DAX index edged down by 0.1%, finishing at 20,317.10, and France’s CAC 40 rose 0.5% to 7,490.28.
On the commodities front, oil prices continued to rise. U.S. benchmark crude rose 38 cents, reaching $74.29 per barrel, while Brent crude increased by 39 cents, settling at $77.31 per barrel.
In the foreign exchange market, the U.S. dollar strengthened against the Japanese yen, rising to 158.40 yen from 158.14 yen. The euro, on the other hand, saw a slight decline, dropping to $1.0298 from $1.0301.
As markets brace for the upcoming U.S. jobs report and the potential economic shifts under President-elect Trump, investors will be closely monitoring policy developments in the weeks to come.
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