U.S. stock futures , were mostly flat a day after the
S&P 500 (.SPX) touched its highest intraday level since January 2022.
European shares (.STOXX) firmed although trade was generally subdued given
public holidays across the region on Monday and Tuesday.
China's November industrial profits posted double-digit
gains as overall manufacturing improved, data showed, but soft demand continued
to constrain business growth expectations, emboldening calls for more macro
policy support.
MSCI's world stock index touched a more than one-year high
(.MIWD00000PUS) and is up 4.5% in December, while MSCI's broadest index of
Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose more than 1% to an over
four-month high.
"We still have strong equity markets and that is likely
to hold through to New Year," said SEB chief economist Jens Magnusson.
A risk-on mood in world markets lifted the euro to more than
four-month peaks against the dollar, while oil prices slipped as some major
shippers returned to the Red Sea -- an area disrupted after Yemen's Houthi
militant group began targeting vessels earlier this month.
Maersk shares fell almost 5%, and other shipping stocks also
slipped, giving back part of this month's gains fuelled by expectations that a
Red Sea traffic halt could boost rates.
Japan's Nikkei (.N225) rallied more than 1%, and Hong Kong's
Hang Seng Index (.HSI) rose 1.7% in its first trading day after the Christmas
and Boxing Day holidays. Chinese blue chips (.CSI300) eked out a marginal gain
of 0.35%.
Market pricing now shows a more than 80% chance the Fed is
likely to begin cutting rates next March, according to the CME FedWatch tool,
with over 150 basis points of easing priced in for all of 2024 .
Tim Murray, a capital markets strategist in the multi-asset
division at T. Rowe Price, noted much of the year had been spent in fear that
rate hikes would drag the economy into recession.
"Happily, that did not happen, and a more dovish Fed
means the likelihood of recession in 2024 has fallen considerably," he
said.
U.S. and European government bond yields edged lower as
investors held tight to rate-cut bets, with 10-year U.S. Treasury yields last
down 1.5 basis points at 3.86% .
EURO SHINES
In currency markets, the dollar remained on the back foot
and languished near a five-month low against a basket of currencies .
The euro touched its highest level since August, at $1.1059
, while the dollar was 0.15% firmer against the yen at 142.59 following the
release of minutes from a Bank of Japan policy meeting earlier this month.
BOJ policymakers remain divided over if, and when, the
central bank should move away from its ultra-loose monetary stance, the minutes
show.
Bank of Japan Governor Kazuo Ueda meanwhile said he was in
no rush to unwind ultra-loose monetary policy as the risk of inflation running
well above 2% and accelerating was small, public broadcaster NHK reported.
Brent crude futures slipped 0.5% to $80.66 a barrel, while
U.S. WTI crude futures fell 0.7% to around $75, pulling back from respective
one-month highs hit the previous session.
Oil prices rose more than 2% on Tuesday as fresh attacks on
ships in the Red Sea prompted fears of shipping disruptions. Still, major
shipping firms such as Maersk and France's CMA CGM said they were resuming
passage through the Red Sea following the deployment of a multinational task
force to the region.
SEB's Magnusson said his main scenario was that disturbances
to shipping would be short-lived although there were risks to disruptions
further out.
"It is something to keep an eye on from an inflation
perspective as we know now what disturbances in global transportation can do to
inflation," he added.
"It's not my main scenario but there is a tail risk of
escalation and that's something that could impact risk appetite."
Iran denied on Monday a U.S. claim that a drone launched
from Iran had struck a chemical tanker in the Indian ocean.
Elsewhere, the Turkish lira weakened to a fresh record low
of 29.4 against the dollar , and is now 36% weaker this year.
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