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Asia stocks down, dollar near five-month low


Japan’s Nikkei eased 0.07 per cent but remains the best performing Asian stock market with a 27 per cent gain for the year

Asian stocks traded tentatively on Tuesday, while the dollar hovered near a five-month low as cooling U.S. inflation strengthened bets the Fed would cut interest rates soon.

Investors were still digesting data released on Friday that showed U.S. prices dropped in November for the first time in over 3-1/2 years, underscoring the economy’s durability.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.18 per cent, on course for a 1.6 per cent gain this year. Japan’s Nikkei shed 0.07 per cent but remains the best performing Asian stock market with a 27 per cent gain for the year.

Trading is likely to be thin on the day after Christmas with several markets, including those in Australia, New Zealand and Hong Kong closed for the Boxing Day holiday.

Stock investors have cheered recent signs from the Federal Reserve on the outlook for rates. At the conclusion of its policy meeting on December 13, the Fed hinted that it had reached the end of its tightening cycle and opened the door to interest rate cuts in the coming year.

The Fed has aggressively changed its rhetoric to engineer a significant easing of financial conditions, Citi analysts said in a note.

A combination of slower core inflation and growing recession concerns led Fed officials to shift rhetoric away from a commitment to fight inflation with higher-for-longer rates and toward reassuring markets that they will not ‘hang on’ to higher rates for too long. The analysts wrote.

Markets are now pricing in a 75 per cent chance of a 25 bps rate cut from the Fed in March, shows the CME FedWatch tool, compared with a 21 per cent chance at the end of November. Markets are also pricing in more than 150 bps of rate cuts next year.

In Asia, China stocks dropped 0.12 per cent in early trading, with online gaming companies still reeling from new rules to curb spending on video games, while Hong Kong’s Hang Seng Index remained closed.

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