Global Market Quick Take: Asia – December 12, 2024

Key points:

• Macro: Fed cut next week looks near certain with US CPI out, ECB and SNB to cut today
• Equities: Nasdaq 100 sets new record after gaining 1.7%
• FX: Yuan weakened on reports of likely devaluation, CAD strengthened despite BOC’s 50bps cut
• Commodities: Oil rose on EU sanctions; OPEC cut demand forecasts
• Fixed income: Yield curve steepens as 30 year yield at highest in two weeks

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Disclaimer: Past performance does not indicate future performance.

Macro:

• US CPI for November came in as expected and cemented calls for a 25bps rate cut from the Fed next week. Headline M/M rose 0.3% (prev. 0.2%) with the Y/Y figure rising 2.7% (prev. 2.6%). Core M/M rose 0.3% (prev. 0.3%) and the Y/Y printed 3.3% (prev. 3.3%). Housing metrics also started to show some softening. Some concerns of inflation stickiness remain as this is the fourth straight 0.3% MoM print on the core which makes 2% goal look difficult to achieve, but that will be more a 2025 concern.
• The Bank of Canada cut rates by 50bps as was expected, taking the target rate to 3.25% from a peak of 5% and now matching the top end of the BoC's neutral rate estimate. The BoC also removed language from the statement about it being reasonable to expect further rate cuts if the economy evolves in line with forecast. Instead, the BoC said it will evaluate the need for further rate cuts one decision at a time, with decisions guided by incoming information and their assessment of the implications for the inflation outlook. This suggests a more gradual approach as the central bank has removed restrictiveness from the policy. Looking ahead through end-2025, money markets imply 61bps of easing, vs the 72bps of easing beforehand as the BoC signals a slower path ahead.
• ECB preview: The European Central Bank meets today and is expected to cut rates by 25 basis points to 3.15% from 3.4%. Growth outlook has worsened since the last ECB meeting and disinflation progress has continued, suggesting Lagarde’s press conference tone could also be dovish but the political mess in Europe could keep her balanced.

Equities: 

• US - The S&P 500 rose by 0.9%, moving closer to its all-time highs, while the Nasdaq 100 climbed 1.7%, setting a new record. The "Magnificent Seven" mega-cap stocks saw gains across the board. Alphabet rose 5.5% following a quantum computing breakthrough, while Tesla increased by 5.9%, Nvidia went up 3.1%, Meta gained 2.1%, Amazon advanced by 2.3%, and Microsoft rose 1.3%.
• Apple is collaborating with Broadcom to develop its first in-house AI chip named Baltra, expected to enter mass production by 2026.
• Germany - DAX rose 0.4% as U.S. inflation met expectations, supporting predictions of a 25bps Fed rate cut next week. Traders are also anticipating the ECB's policy decision tomorrow, expecting a fourth rate cut and insights into next year's rates.
• Earnings – Broadcom, Costco

FX:

• The US dollar experienced broad gains against major currencies, initially supported by reports that China's policymakers might allow the Yuan to weaken in 2025 amid looming Trump tariffs. US inflation print also came in as-expected, boosting the case for a Fed rate cut next week despite resilient growth in the US economy.
• The Chinese Yuan eased from weekly highs following reports of potential future weakening due to tariff concerns. USDCNH jumped to 7.29 from 7.25 on the reports and continues to trade above 7.27.
• CAD strengthened after the Bank of Canada cut rates by 50bps, as expected, with a hawkish statement suggesting no further rate cuts if the economy aligns with forecasts. USDCAD eased from 4-year highs of 1.4195 and now trades below 1.4140.
• EURUSD fell below 1.05 on dollar strength, and the ECB is expected to cut rates by 25bps today.
• The Japanese Yen experienced volatility due to mixed signals from the BoJ, initially strengthening on reports of a cautious approach to rate hikes, but later weakening as concerns about inflation from a soft JPY diminished.
• The Swiss Franc showed weakness ahead of the SNB's rate decision, with a 40% market expectation of a 50bps rate cut.

Commodities:

• WTI crude oil rose 2.5% to $70.29 due to EU sanctions on Russian oil. Gains were limited by high US fuel inventories and OPEC's reduced demand forecasts. Optimism persists for Chinese demand recovery with Beijing's planned monetary easing in 2025.
• Gold surpassed $2,715, continuing its rally as US inflation data reinforced expectations of a Fed rate cut.
• Copper futures fell to $4.26 per pound, reversing early gains, as the Chinese yuan's decline impacted base metals.

Fixed income:

• Treasuries fell as crude oil rose, possibly impacting today’s 30-year bond auction. Despite strong demand for the 10-year note, yields rose from session lows influenced by November CPI data suggesting a December 18 Fed rate cut. Yields increased by 1 to 6 basis points across maturities, with the 2s10s and 5s30s spreads widening by about 3 and 2 basis points, respectively.

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