Japanese and Australian shares declined and equity futures for Hong Kong signaled losses after selling on Wall Street hit stocks and government bonds Thursday. The Nasdaq 100 slid 0.7% while the S&P 500 fell 0.5% as traders weighed higher-than-expected jobless claims against too hot producer price data.
In China, investors will be looking to gauge the market reaction to news that the government will borrow more money next year to support consumption in an effort to bolster the economy. Chinese officials said they would raise the fiscal deficit target next year following the two-day Central Economic Work Conference in Beijing, the state-run Xinhua News Agency reported.
Treasuries were steady after falling across the curve on Thursday, lifting the 10-year yield six basis points and the policy-sensitive two-year yield four basis points. Australian and New Zealand yields also rose early Friday.
An index of dollar strength was little changed, holding on to gains from the prior session, its fifth daily advance. The stronger dollar was helped along by higher Treasury yields, the prospect the Fed may pause its policy easing in early 2025, and rate cuts in Europe.
The European Central Bank trimmed borrowing costs by 25 basis points as expected and indicated it may deliver further cuts in its upcoming meetings. The Swiss National Bank delivered a 50 basis point cut, more than anticipated. The Swiss franc fell almost 1%.US economic data released Thursday offered a muddy outlook on the health of the economy. Weekly jobless claims rose more than expected, while producer price readings were mixed. US wholesale inflation accelerated in November due to a surge in egg prices.The data did little to shift expectations for a US rate cut next week. Swaps market pricing reflects around a 95% level of confidence the central bank will reduce borrowing costs by 25 basis points at the December meeting.
“With high egg prices appearing to play a key role in the hotter-than-expected headline PPI, traders may be focusing more on the jump in jobless claims,” according to Chris Larkin at E*Trade from Morgan Stanley. While there’s been a steady stream of solid labor data, “the Fed is primed to be sensitive to any signs of a softening jobs picture.”
To Ella Hoxha, head of fixed income at Newton Investment Management, a “hawkish cut” from the Fed is possible next week. “In that setup, the risk is still that you price the Fed to be a bit more cautious rather than more dovish.”
Shares in Broadcom Inc. then rallied in late trading after the US chipmaker predicted a boom in demand for its artificial intelligence chips. Nasdaq 100 futures rose in early Asia hours, while S&P 500 contracts were steady.
In Asia, data set for release Friday includes industrial production in Japan and gross international reserves for Thailand. Money supply data for China may be released any time through December 15.
In Brazil, the Ibovespa stock index fell 2.7% Thursday, its biggest one-day decline since January 2023, following heightened concerns over the nation’s fiscal outlook and the central bank’s hawkish 100bps rate hike.
Breadth Problems
Despite Thursday’s pause in the US stock market’s rally, Fundstrat’s Mark Newton sees more room for equity benchmarks to set new highs into year end.
“It’s a known fact that the PPI doesn’t really affect core PCE, which is the Fed’s preferred gauge for inflation,” said the firm’s head of technical strategy.
In commodities, oil snapped a three-day rally to settle near $70 a barrel with expectations for a supply glut in 2025 countering geopolitical risks. Gold was steady after falling 1.4% Thursday, the biggest drop in two weeks.