Global Market Quick Take: Asia – December 19, 2024

Key points: 

• Macro: Fed delivers a hawkish rate cut, BOJ expected to pause 
• Equities: Equities lower across the board after Fed’s hawkish stance 
• FX: US dollar rose sharply on Fed’s hawkish tilt 
• Commodities: Commodities traded lower across the board post FOMC 
• Fixed income: Treasuries sold off after Fed's dot plot update reduced easing expectations 

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Disclaimer: Past performance does not indicate future performance. 

 Macro: 

• The Federal Reserve delivered a hawkish rate cut of 25bps, as expected, to 4.25-4.5% in an 11-1 split, with Cleveland Fed president Hammack voting to leave rates unchanged. The statement was little changed from the November meeting, but the updated dot plot suggested pace of easing could be slower next year than earlier anticipated. The median 2025 dot rose to 3.9% from 3.4% (exp. 3.6%), while the 2026 median rose to 3.4% (exp. 3.1%, prev. 2.9%). 2027 and longer run median dot plots rose to 3.1% (prev. 2.9%) and 3.0% (prev. 2.9%), as expected. As such, the 2025 median dot plot looks for just two cuts in 2025 compared to four in the September dot plot. Core PCE inflation is now seen at 2.5% for 2025 (prev. 2.2%) and 2.2% for 2026 (prev. 2.0%).
• BOJ preview: The Bank of Japan policy decision is out tomorrow, and communication has shifted lately to suggest that the bank is likely to wait as the BOJ views delaying tightening as low-risk and waits for more wage growth evidence and Trump policy risks in Jan 2025. With both Fed and BOJ within 12 hours, there is heightened volatility in the Japanese yen. Our Trading Desk have elaborated a short strangle option strategy for USD/JPY in this article. 
• BOE preview: The Bank of England is expected to hold rates unchanged at 4.75% due to sticky inflation especially on the services side, and elevated wage growth. A potential boost to growth from recent fiscal measures is also underpinning. Note, there is no MPR or press conference for this release. Looking beyond the upcoming meeting, markets look for 57bps of easing in 2025.
• New Zealand 3Q GDP falls 1.5% YoY vs est -0.4%, indicating recession; 2Q GDP revised to -1.1% QoQ from -0.2%. 

Equities:  

• US - The S&P 500 fell 2.9%, the Nasdaq 100 dropped 3.7%, and the Dow Jones lost 1123 points, its longest losing streak since 1974. Tesla, the largest decliner in Nasdaq 100 fell 8.3% after rallying as much as 40% this month. 
• Micron fell 16% in after-hours trading as they reported weak Q2 revenue and earnings guidance for the current quarter, expecting only $7.9b vs analyst expectations of $8.98b 
• Japan - Nikkei 225 fell 1.5% this morning following a U.S. equities sell-off. The Fed's expected rate cut to 4.25%-4.5% was overshadowed by its forecast of only two rate cuts in 2025, down from the four previously anticipated, dampening investor sentiment. 
• Earnings - Nike, Accenture, BlackBerry, FuelCell 

FX: 

• The USD rose sharply on the back of a hawkish tilt at the Fed announcement. The DXY index marched past the 108 level to its highest levels in a year with gains across the board. Activity currencies were the worst performers, hitting fresh lows, amid a renewed risk-off sentiment. 
• NZDUSD was down over 2% to two-year lows, weighed down by the US dollar strength and data showing that the New Zealand economy is in a worse-than-feared recession. AUDUSD also plunged to its lowest level since October 2022, and now testing the 0.62 handle. 
• USDJPY moved higher, inching closer to 155, with Treasury yields jumping higher. BOJ on the radar today, and any dovish hints could fuel further weakness in the yen.
• EURUSD plunged to 1.0350 support from 1.05, while GBPUSD slid back below 1.26 and BOE is expected top leave rates unchanged today.  

Commodities: WTI rose at the start of the day due to bullish inventory data but ended the day 0.50% lower. February gold dropped $8.70 to $2,653.30 per ounce and copper futures fell below $4.05 per pound, pressured by a stronger dollar and negative risk sentiment. 

Fixed income: 

• Treasury yields rose by over 10 basis points across the front-end and belly of the curve in a bear flattening move after the Fed cut rates by 25 basis points, as expected, and revised its dot-plot to show a median of 50 basis points of cuts by end-2025. Losses increased during Chair Powell’s press conference.
• U.S. yields were cheaper by up to 11.5 basis points in the belly. U.S. 10-year yields hovered around 4.5%, the highest since November 15. Losses were mainly due to the Fed's dot plot update, reducing expectations for future easing. By late session, about 30 basis points of rate cuts were priced in for next year, down from around 50 basis points earlier. 

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