SYDNEY: Asia shares fell on Friday as a strong dollar weighed on risk sentiment, while longer-dated Treasury yields are headed for their biggest weekly rise in a year on receding U.S. rate cut expectations for 2025.
Top policymakers in Beijing this week pledged to increase debt and lift consumption but failed to boost Chinese equity markets. Authorities are girding for more trade tensions with the U.S. as Donald Trump's return to power approaches.
European markets are set for a lower open, with EUROSTOXX 50 futures down 0.3% lower. Nasdaq futures rose 0.3%, after Wall Street retreated from record highs overnight.
It has been a week of rate cuts from Switzerland, Canada and the European Central Bank, which had rate differentials working in the favour of the U.S. dollar.
The dollar's relentless strength is pressuring currencies in emerging markets. The Indonesian rupiah hit a four-month low on Friday and its central bank had to intervene repeatedly to shore up the currency.
India's central bank was seen selling dollars via state banks to support the rupee, which is near record lows.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.6% on Friday. Japan's Nikkei fell 1% but is still on track for a weekly gain of 0.9%.
Both China's blue chips and Hong Kong's Hang Seng lost 1.2% after the Central Economic Work Conference did not offer details on new stimulus measures. A subindex of Chinese property firms listed in Hong Kong slid 3.3%.
Jian Chang, chief China economist at Barclays, said the CEWC likely disappointed markets as a Dec. 9 Politburo statement had raised hopes of more aggressive easing.
"We maintain our view that incremental and reactive policy is more likely than pre-emptive and 'bazooka' policy," she said.
HIGHER BOND YIELDS
The dollar, which is 1% higher this week against its peers , likely drew support from the rise in long-term treasury yields. The 10-year benchmark bond yield rose 17 bps while 30-year yields surged 22 bps, the biggest weekly rise in more than a year.
Markets are still confident of a cut from the Federal Reserve next week. Data on U.S. producer prices came out a little hotter than expected in November due to a 50% jump in egg prices.
The core reading was a bit softer and led Goldman Sachs to lower their forecast for the Fed's preferred gauge of inflation - the core personal consumption expenditures price index due next week - to a monthly rise of 0.13%.
However, futures imply little chance of a move in January, with just two more easings priced in to 3.8% by end-2025. In contrast, rates in Europe are seen at 1.75% compared with 3% currently, while those for Canada are expected to fall from 3.25% to 2.7% by then.
The dollar also gained 1.8% on the Japanese yen this week as markets scaled back the chance of a rate hike from the Bank of Japan next week to just 22%. Sources said the BOJ is leaning towards keeping rates steady..
It rose 1.6% on the Swiss franc to 0.8919, within a whisker of a five-month high of 0.8957, after the Swiss National Bank surprised economists by cutting rates 50 basis points.
Oil prices were flat on Friday but set for decent weekly gains. U.S. West Texas Intermediate (WTI) held at $70.07 and is up 4% this week.
Gold gained 2.1% this week to $2,688.13 per ounce, still some distance from its record of $2,790. - Reuters
