Bonds, stocks rise at year's end thanks to Fed bets: Markets wrap

(Bloomberg) — Stocks and bonds in Asia followed Wall Street higher as investors braced for expected interest rate cuts from the Federal Reserve next year. Gold rose to a record high.

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The global bond rally extended to Asia with sovereign debt in Australia and New Zealand rising after yields on five- to 30-year Treasuries fell by at least 10 basis points on Wednesday, and Germany's 10-year yields fell to a new low in 2023. Globally, the bond market is on the cusp of its best rise ever in two months.

The Asian stock index rose for a fourth day, its longest rise since early November, with the year-end rally poised to end at a high. Chinese stocks headed towards their best day in four months amid a shift towards large-cap stocks with high market capitalization, while Japanese stocks fell due to the strength of the yen. US stock futures were strong, adding to Wednesday's modest advance in the S&P 500.

A gauge of global stocks is headed toward its highest close since February 2022, up more than 15% from its October low, reflecting traders' optimism for interest rate cuts next year. Traders ramped up their bets on federal interest rate cuts early in March, according to Fed swaps pricing. It's a view that has gained momentum since policymakers updated their forecasts this month to show they expect borrowing costs to fall at a stronger pace than indicated in their previous forecasts.

Gains in bonds were helped by bumper demand for five-year Treasuries on Wednesday, which itself came after strong appetite for a two-year auction the day before. The strong appetite for the paper is a sign that investors want to secure attractive returns ahead of expected cuts from the Fed.

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Vishnu Varathan, head of economics and strategy at Mizuho Bank Limited in Singapore, said expectations of monetary policy easing are coming to the fore. “The ferocity of the bond market rally has actually increased total returns for investors – there is a sense that markets are signaling that we are halfway to easy monetary policy again,” he said.

Treasury yields were flat in Asia. The US dollar fell against all its G10 peers, with the Australian dollar rising to its strongest level since July.

In Asia, the yen rose for a second day after Bank of Japan Governor Kazuo Ueda continued to pave the way for the country's first interest rate increase since 2007.

“It is possible to make some decisions even if the bank does not have the full results of the spring wage negotiations from small and medium-sized enterprises,” the governor said in an interview with public broadcaster NHK released on Wednesday.

China's CSI 300 index is headed for its first weekly gain since early November, with technology stocks contributing more to the rise on Thursday.

Japanese industrial production slowed less in November than economists expected. Other data up for release include trade data for Hong Kong and Thailand and the November budget balance for the Philippines.

In corporate news, Apple Inc. won. A court ruling temporarily halts the US sales ban on its latest smartwatches. The New York Times Company has filed a lawsuit against Microsoft and OpenAI Inc. To use the content to help develop artificial intelligence services. Shipping giant Hapag-Lloyd AG said it would keep its ships out of the Red Sea even after launching a US-led task force to protect the key trade route.

Oil fell amid signs of building US inventories. Elsewhere, bitcoin rose, trading above $43,000 amid renewed speculation that the U.S. Securities and Exchange Commission is close to approving an exchange-traded fund that invests directly in the largest token.

Main events this week:

• Japanese industrial production, retail sales, Thursday

• US Wholesale Inventories, Initial Jobless Claims, Thursday

• House prices nationwide in the UK, Friday

Some key movements in the markets:

Stores

• S&P 500 futures rose 0.1% as of 1:59 p.m. Tokyo time

• Nasdaq 100 futures rose 0.2%

• Japan's Topix index fell 0.2%.

• Australia's S&P/ASX 200 rose 0.6%.

• The Hang Seng Index in Hong Kong rose 1.5%.

• The Shanghai Composite Index rose 1.1%.

• Euro Stoxx 50 futures rose 0.4%.

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%.

• There was little change in the euro at $1.1111

• The Japanese yen rose 0.4 percent to 141.22 yen to the dollar

• The yuan in external transactions rose 0.5 percent to 7.1192 per dollar

Digital currencies

• Bitcoin was little changed at $43,354.42

• Ethereum rose 1.8% to $2,403.46

Bonds

Goods

• West Texas Intermediate crude fell 0.2 percent to $73.99 a barrel

• Spot gold rose 0.4 percent to $2,086.54 an ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from Ruth Carson and Masaki Kondo.

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