By Stella Qiu

Asia Shares Decline Amid Strong Dollar

SYDNEY (Reuters) – Asia shares fell on Friday due to a strong dollar impacting risk sentiment. Longer-dated Treasury yields are on track for their biggest weekly rise this year as expectations for deep U.S. rate cuts in 2025 diminish.

Beijing Meeting and Trade Tensions

A high-level meeting in Beijing promised increased debt and consumption but did not uplift Chinese equity markets. Policymakers are preparing for heightened trade conflicts with the U.S. as Donald Trump's potential return to power looms.

Impact of Global Rate Cuts

This week has seen rate cuts from Switzerland, Canada, and the European Central Bank, which have favored the U.S. dollar due to varying rate differentials. The notable rise in long-term Treasury yields has also been a key market feature. While a Federal Reserve cut is expected next week, there is caution about the outlook for next year.

Yields and Comparisons

Thirty-year yields have surged by 22 basis points this week, marking the largest increase since October 2023. Current expectations suggest European rates will decrease from 3% to 1.75%, with Canadian rates anticipated to drop from 3.25% to 2.7% by 2025.

Market Performance

MSCI’s broadest index of Asia-Pacific shares outside Japan fell by 0.5% in Friday morning trading. Japan's Nikkei index decreased by 1% but is still on track for a 0.9% weekly gain. Chinese blue chips fell by 0.7% and Hong Kong's Hang Seng index dropped by 1.2%, following disappointing details from the Central Economic Work Conference regarding new stimulus measures.

Economic Predictions

Jian Chang, Barclays’ chief China economist, suggested markets were let down by the CEWC, which raised hopes for aggressive easing. Incremental policy measures are more likely than large-scale initiatives.

On Wall Street, stocks closed lower as investors locked in profits, but Nasdaq futures increased by 0.4% in Asia. U.S. producer prices slightly exceeded expectations with a 0.4% rise in November, primarily due to a significant increase in egg prices.

Currency Market Dynamics

In foreign exchange, the dollar is poised for a 1% weekly gain against its peers. It rose by 1.8% against the Japanese yen as markets adjusted expectations for a rate hike from the Bank of Japan. The dollar also gained 1.6% against the Swiss franc after the Swiss National Bank's unexpected 50 basis point cut.

Treasury Yields and Oil Prices

Treasuries remained stable on Friday but faced substantial weekly losses overall. The two-year yield rose by 9 basis points to 4.1906%, while the ten-year benchmark climbed 17 basis points to 4.3219%.

Oil prices decreased slightly but are projected to show solid weekly gains after the EU imposed new sanctions affecting Russian oil. U.S. West Texas Intermediate (WTI) dropped 0.1% to $69.95 a barrel but gained 4% over the week.

Gold Performance

Gold prices increased by 2% this week, reaching $2,690.21 per ounce, remaining below its record of $2,790.