Jan 2 2025: Asian stocks faced a rocky start to 2025, slipping on Thursday as investors treaded cautiously ahead of Donald Trump’s return to the U.S. presidency and amid signals of a more hawkish Federal Reserve. While global equities closed 2024 with robust annual gains of nearly 16%, a 2% decline in December dampened the optimism.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.58% in Thursday’s session after sliding 1.2% in December. However, the index still managed a 7% gain for 2024. Trading activity was muted due to a holiday closure in Japan.
Despite Asian losses, stock futures suggested a positive opening for European and U.S. markets, with EUROSTOXX 50 futures up 0.74%, FTSE futures inching up 0.05%, and S&P 500 and Nasdaq futures advancing 0.48% and 0.67%, respectively.
Trump’s Policies and Market Concerns
The market mood remains clouded by uncertainty over Trump’s upcoming policies, including talk of tariffs exceeding 60% on Chinese imports. Analysts, such as Tony Sycamore of IG, have expressed concern over markets’ inability to capitalize on a traditionally strong December, signaling broader economic worries.
Chinese equities took a significant hit, with the CSI300 blue-chip index down 2.65% and the Shanghai Composite losing 2.36%. Hong Kong’s Hang Seng Index fell 2.15%.
China’s economic prospects for 2025 remain uncertain, with external risks from Trump’s protectionist stance adding to domestic challenges. According to Yingrui Wang of AXA Investment Managers, delays or missteps in Beijing’s stimulus measures could push the economy closer to a potential debt-deflation trap.
Other Asian Markets and the Dollar
South Korea’s KOSPI remained flat, continuing its struggle after a 22% loss in 2024, driven partly by political instability.
The U.S. dollar remained strong, hovering near a two-year peak as global uncertainties and limited Fed rate cuts supported its safe-haven appeal. The dollar traded at 157.18 yen, approaching a five-month low for the Japanese currency. The euro gained 0.08% to $1.03615 but stayed near its recent lows.
Fed Rate Outlook and Treasury Yields
Markets now anticipate the Federal Reserve to deliver just two 25-basis-point rate cuts in 2025, with reductions potentially delayed until March and June. By contrast, the European Central Bank and Bank of England are expected to cut rates more aggressively.
Long-term U.S. Treasury yields are forecast to rise further, with a 12-month projection for the 10-year yield at 5%, according to Eli Lee of the Bank of Singapore.
Commodities in Focus
Oil prices edged higher, with Brent crude futures up 0.25% to $74.83 per barrel and U.S. West Texas Intermediate crude gaining 0.28% to $71.92 per barrel.
Gold extended its strong performance from 2024, rising 0.34% to $2,632.68 per ounce. The yellow metal surged over 27% last year, marking its best annual performance since 2010.
