Asian Shares Hit Three-Month High as Dollar Plummets, Global Economy Weighs

Asian shares reached a three-month high on Friday as the rally sparked by the Federal Reserve’s change in stance continued. The decline in the U.S. dollar and Treasury yields contributed to the positive sentiment in the markets. However, hopes for a global shift towards rate cuts were dampened by resistance from European central banks. Despite this, Asian markets saw significant gains, with MSCI’s broadest index of Asia-Pacific shares outside Japan rising 0.7% and Japan’s Nikkei jumping 1.2%. Chinese blue-chip stocks also rebounded, while Hong Kong’s Hang Seng index rallied 1.7%. As investors closely monitor Chinese economic data to gauge the extent of the country’s economic slowdown, concerns about the pricing of rate cuts and their timing began to emerge. Tony Sycamore, an analyst at IG, cautioned that rate cuts may be priced in too generously and could be pushed back to mid-2023. In the U.S., Wall Street saw record highs, driven by expectations of significant easing by the Fed in the coming year. However, European central banks maintained their tight monetary policies, underscoring that the Fed’s pivot towards rate cuts may not mark a global turning point. The euro and sterling strengthened as a result, putting additional pressure on the already weakened U.S. dollar. In terms of bond yields, British and German yields retraced steep declines, while U.S. Treasury yields were on track for the best week in over a year. Despite U.S. retail sales showing an unexpected rebound in November and declining jobless claims, indicating a robust economy, the markets remained optimistic about rate cuts. Oil prices continued to rise due to the weak dollar, with the International Energy Agency (IEA) revising its oil demand forecast for next year. Gold prices, however, slipped slightly. Overall, the market rally fueled by the Fed’s pivot continued in Asian markets, despite some concerns about the timing and extent of rate cuts. The resistance from European central banks tempered the optimism and highlighted potential challenges to a global turning point. As investors eagerly await further economic data from China, market sentiment remains cautiously optimistic, with a tinge of uncertainty regarding the sustainability of market gains.