Global Market Quick Take: Asia – December 20, 2024

Key points: 

• Macro: BOJ’s dovish tilt returned, BOE’s hold was also dovish, US PCE on watch today 
• Equities: US closes almost flat after prior day sell off 
• FX: JPY and GBP underperform on dovish central banks 
• Commodities: Commodities trade lower across the board 
• Fixed income: 10Y yields rise above 4.5% 

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Disclaimer: Past performance does not indicate future performance. 

 Macro:

• The Bank of Japan held rates unchanged and Governor Ueda also sounded unconvinced about the ongoing wage-price spiral and intended to wait for more confirmation from the spring wage negotiations. That seemed to suggest that January rate hike was also off the table.
• US President-elect Trump and the DOGE committee (Musk and Ramaswamy) pushed House Republicans to vote against the Continuing Resolution (CR) bill due to excessive spending. The Republicans rejected a three-month stop-gap funding extension with negotiations for a new bill ongoing. Reports suggested that Republicans are eyeing a funding plan B that excludes a debt ceiling increase and are instead working on a commitment to raise the borrowing limit twice next year under reconciliation. According to NBC Trump would support abolishing the debt ceiling.
• Initial jobless claims (w/e 14th Dec) fell to 220k (prev. 242k) beneath the expected 230k, with the 4wk average ticking higher to 225k from 224.25. Continued claims (w/e 7th Dec) fell to 1.874mln (exp. 1.890mln) from the revised lower 1.879mln and came in marginally underneath the bottom end of the consensus range.
•  As expected, the Bank of England MPC opted to hold the Base Rate at 4.75%. The main surprise for the announcement came via the vote split with three dovish dissenters (Dhingra, Ramsden and Taylor) vs. the one expected by analyst consensus, and hence this was seen as a dovish hold. 

Equities:  

• US – Wall Street ended mostly flat on Thursday after a prior selloff, as investors assessed the impact of the Fed's hawkish outlook on future corporate returns. The S&P 500 and Nasdaq 100 fell 0.1% and 0.5%, respectively, while the Dow gained 14 points, ending a ten-session losing streak. The Fed cut the funds rate by 25 basis points as expected but projected only two rate cuts in 2025. 
• Germany - DAX dropped 1.2% on Thursday, following declines in European and Asian markets after the FOMC's recent decision. The Fed cut the fed funds rate by 25bps as anticipated but indicated only 50bps of cuts for 2025, half of what was projected in September, due to slower-than-expected progress in reaching the inflation target. 
• Earnings - Carnival 

FX: 

• The USD extended the post-FOMC gains with DXY index rising to fresh highs of 108.485 towards the end of the session.
• USDJPY is testing 158 after having broken above November highs of 156.75 amid a hawkish Fed and a dovish BOJ. US yields continued to rise on that back of news of Trump supporting abolishing of the debt ceiling, and further hawkish US data could push USDJPY towards 160.
•  A dovish BOE hold also pushed GBP lower. GBPUSD is now testing November’s low of 1.2487 and the next target could be 1.2446. CHF, CAD and AUD however rose against the USD as some of the post-FOMC losses were pared. 

Commodities:  

• WTI crude oil futures dropped below $70 per barrel reversing previous gains due to the strong US dollar. USD hit a two-year high after the Fed cut rates but indicated fewer cuts next year, raising concerns about fuel demand. Oil found some support as EIA data showed a nearly 1 million barrel decline in US crude stocks in the second week of December, following a 1.4 million barrel draw the previous week. Gold, silver and copper also moved lower. 

Fixed income: 

• 10Y yields rose above 4.5% on Thursday, its highest in seven months, following the Fed's 25 basis point rate cut. The Fed now expects only two rate cuts in 2025, down from four. It also raised GDP growth and inflation forecasts while lowering unemployment expectations. Markets see a 94% chance of unchanged rates in January, with Treasury prices pressured by concerns over President-elect Trump’s tariff threats. Republicans may pursue a funding plan without a debt ceiling increase and planning to raise the limit twice next year via reconciliation. NBC says Trump supports eliminating the debt ceiling. 

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