Bonds, Stocks Rally Into Year-End on Fed Cut Bets: Markets Wrap

(Bloomberg) — Stocks and bonds in Asia followed Wall Street higher as investors position themselves for anticipated Federal Reserve interest-rate cuts next year. Gold rose to a record high.

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The rally global bonds spread to Asia with sovereign debt in Australia and New Zealand rallying after yields on five- to 30-year Treasuries fell at least 10 basis points on Wednesday, and Germany’s 10-year yields dropped to a fresh 2023 low. The gains pushed one global measure of the bond market to the cusp of its best two-month rally on record.

A gauge of Asian equities climbed for the fourth day, its longest run since early November, with the year-end rally primed to end on a high note. Chinese stocks were headed for their best day in four months amid a rotation into oversold largecap stocks, while Japanese shares declined on yen strength. US stock futures were firm, adding to Wednesday’s modest advance in the S&P 500.

A measure of global stocks is on pace for its highest close since February 2022, up more than 15% from its October low, reflecting traders’ optimism for interest rate cuts next year. Traders have stepped up bets on Fed rate cuts as early as March, according to Fed swaps pricing. A view that has gained momentum since policymakers updated their forecasts this month to show they expect to reduce borrowing costs at a stronger pace than indicated in their previous projections.

The gains in bonds were helped by bumper demand for five-year Treasury notes Wednesday, which itself followed strong appetite for a two-year auction the day before. Strong appetite for the paper is a sign investors want to lock in attractive yields prior to expected Fed cuts.

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Expectations of aggressive policy easing are getting front-loaded, said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “The ferocity of the bond market rally has really augmented the total returns for investors — there’s a feeling markets are signaling we’re heading half-way toward easy monetary policy again,” he said.

Treasury yields were steady in Asia. The US dollar dropped against all its Group-of-10 peers, with the Australian dollar rising to the strongest level since July.

In Asia, the yen gained for the second day after Bank of Japan Governor Kazuo Ueda continued to prepare the ground for the nation’s first interest rate increase since 2007.

“It’s possible to make some decisions even if the bank doesn’t have the full results of spring wage negotiations from small- and middle-sized businesses,” the governor said in an interview with public broadcaster NHK released Wednesday.

China’s CSI 300 Index is headed for the first weekly gain since early November, with technology stocks contributing the most to the rally Thursday.

Japan industrial output slowed less in November than economists forecast. Other data on the docket for release includes 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 pausing a US sales ban on its newest smartwatches. The New York Times Co. sued Microsoft Corp. and OpenAI Inc. for the use of content to help develop artificial intelligence services. Shipping giant Hapag-Lloyd AG said it will keep its vessels away from the Red Sea even after the launch of a US-led taskforce to protect the key trade route.

Oil declined amid signs of building US stockpiles. Elsewhere, Bitcoin inched higher, trading above $43,000 amid renewed speculation that the US Securities and Exchange Commission is getting close to approving an exchange-traded fund investing directly in the biggest token.

Key events this week:

• Japan industrial production, retail sales, Thursday

• US wholesale inventories, initial jobless claims, Thursday

• UK Nationwide house prices, Friday

Some of the main moves in markets:

Stocks

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

• Nasdaq 100 futures rose 0.2%

• Japan’s Topix fell 0.2%

• Australia’s S&P/ASX 200 rose 0.6%

• Hong Kong’s Hang Seng rose 1.5%

• The Shanghai Composite rose 1.1%

• Euro Stoxx 50 futures rose 0.4%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro was little changed at $1.1111

• The Japanese yen rose 0.4% to 141.22 per dollar

• The offshore yuan rose 0.5% to 7.1192 per dollar

Cryptocurrencies

• Bitcoin was little changed at $43,354.42

• Ether rose 1.8% to $2,403.46

Bonds

Commodities

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

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

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Ruth Carson and Masaki Kondo.

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