Asian Shares Near Three-Month Lows

By Stella Qiu

SYDNEY (Reuters) – Asian shares were pinned near three-month lows on Friday as investors awaited key U.S. inflation data that could either ease or worsen concerns about price pressures, while the dollar towered at two-year peaks.

The closely watched inflation gauge – the U.S. Core Personal Consumption Expenditures – is due later in the day. Forecasts are centred on a monthly rise of 0.2% for November, and any upward surprises there could lead markets to further scale back bets for U.S. policy easing next year.

Futures imply just 37 basis points of rate cuts from the Federal Reserve in 2025, less than two cuts, after the U.S. central bank turned hawkish at its last meeting of the year. A rate cut is not fully priced in until June.

Rates now are expected to bottom out at 3.9% by the end of next year, much higher than just a few months ago. That outlook took a heavy toll on the Treasury market, where the benchmark 10-year yields jumped 40 bps over the past two weeks to cross above a key level of 4.5% for the first time since May.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4% on Friday and was headed for a weekly drop of 2.6%. It is, however, up over 8% for the year.

Japan's Nikkei rose 0.2% on Friday and is up a whopping 16% for the year, in part due to the weakness in the yen, which has depreciated 12% in 2024 and drew intervention warnings again from Japanese authorities.

Global central banks have now wrapped up an eventful year of rate decisions, with the UK, Japan, Norway and Australia holding firm, and Switzerland and Canada implementing cuts of 50 basis points at their last meeting of the year. Sweden's Riksbank reduced its policy rate by 25 bps, as did the European Central Bank last week.

"Taken together, it's clear how much central banks are worrying about geopolitics and uncertainty in 2025," said James Rossiter, head of global macro strategy, at TD Securities. "They've nimbly set themselves up for more fluid policymaking in 2025.

"Ultimately, uncertainty is going to remain high, policy shocks significant, and markets are going to twist and turn potentially more than in the recent past. 2025 is going to be a ride."

China's blue chips slipped 0.3% while Hong Kong's Hang Seng edged up 0.2%. The People's Bank of China left its benchmark lending rates unchanged on Friday, matching market expectations.

In the currency markets, the dollar stood tall at a two-year peak of 108.45 against its major peers, enjoying some interest rate advantage.

It held near a five-month high at 157.5 yen, having jumped 1.7% overnight as the Bank of Japan held rates steady and Governor Kazuo Ueda struck a dovish tone by saying it would take some time to assess the wage outlook and the impact of Trump's policies.

Data on Friday showed Japan's core inflation accelerated in November, supporting the case of a near-term rate hike. Swaps are split on the chance of a BOJ move in January, with 53% priced in.

The euro is down 1.3% for the week at $1.0364, threatening a key support level of $1.0331. Sterling is set for a weekly loss of 1% to $1.2489 and on the verge of breaking a key level of $1.2484.

Treasuries look set for a fourth straight year of losses, with the 10-year yields up a whopping 70 bps this year. They climbed 17 bps this week to 4.57%.

The commodities market has also taken a hit because of a strong U.S. dollar. Oil prices fell on Friday, with U.S. West Texas Intermediate (WTI) down 0.5% to $69.06 and 2.7% lower for the week.

Gold prices are set for a 1.9% fall this week to $2,598 per ounce.