Asian stock markets were mostly quiet on Friday after the Federal Reserve (the US central bank) made moves that worried investors. Their stricter stance caused US stocks and bonds to fall but helped raise the value of the US dollar.
In countries like Australia and South Korea, share prices dropped. However, Japan saw a small increase in stock prices as their currency, the yen, lost value. In the US, futures (contracts to buy or sell stocks at a set price) were down after the S&P 500 Index fell slightly, heading for its roughest week since September.
US Treasury yields (interest rates on government bonds) stayed steady after rising on Thursday, reaching 4.57%, which is the highest since May. Meanwhile, the two-year yield fell, creating a larger gap between short-term and long-term interest rates.
Even though Japan’s inflation measure improved for the first time in three months, the yen weakened against the dollar. The Bank of Japan decided to keep interest rates steady and left people wondering if they could raise rates in January.
Recent US economic data showed stronger growth than expected, which means immediate rate cuts might not be necessary. There was an increase in consumer spending and a drop in unemployment claims. Investors are waiting for one more important report, the personal consumption expenditures (PCE) data, that comes out today.
Investor sentiment is cautious, according to Matt Maley from Miller Tabak. If bond markets don’t show signs of improvement soon, we might not see the usual upbeat trading known as the “Santa Claus rally” this holiday season.
In other news, President-elect Donald Trump and House Republicans agreed to prevent a government shutdown and to pause the federal debt limit for two years. The market is still adjusting to the Fed’s new announcements, which suggest they might hold off on cuts next year unless the job market shows weaknesses.
The British central bank (Bank of England) also kept interest rates steady at 4.75%, but markets are now expecting rate cuts in the UK by 2025. In Mexico, the peso held steady after the country’s central bank reduced interest rates again.
Today in Asia, key economic data such as inflation for Malaysia and Hong Kong, and Taiwan’s export orders are expected. There are hints that China might also announce changes to their lending rates.
