By Wayne Cole
SYDNEY (Reuters) – Asian stock markets were in a cautious mood on Monday as rising bond yields challenged stock valuations, especially for the high-priced technology sector, in a week filled with central bank meetings and key economic data.
Figures out of China on Monday showed retail sales rose just 3.0% in November, compared with a year earlier, well below market expectations of 4.6% and evidence of the need for more aggressive stimulus. Industrial production was broadly in line with expectations, while home prices continued to decline, albeit at a slower pace.
China's leading stock index fell by 0.2%, after falling by more than 2% last Friday.
Over the weekend, a Chinese central bank official said it had room to further reduce the reserve requirement ratio, although credit figures released last week showed past easing had done little to boost borrowing.
Interest rates are expected to fall in the US and Sweden later this week, and to remain steady in Japan, the UK and Norway.
The Federal Reserve will lead the pack on Wednesday with markets pricing in a 96% probability that it will cut interest rates by 25 basis points to a new range of 4.25% to 4.50%.
More important is any guidance on future easing, including Fed members' expectations for interest rates over the next two years.
“We look to the updated scores to indicate an average forecast of three cuts next year, down from four in the September forecast,” said Michael Feroli, an economist at JP Morgan. “The longer-term midpoint, which was 2.875% in September, we see a rise to 3% or maybe even 3.125%.”
“However, given trade and other policy volatility in the coming year, the signal from the dots may be less useful than usual.”
Investors have been steadily lowering their expectations for how low interest rates will go, partly reflecting strong economic news and speculation that President-elect Donald Trump's plans for tax and tariff cuts will expand government borrowing while putting upward pressure on inflation.
Futures point to just two more cuts next year and interest rates are at around the 3.80% level, much higher than they were just a few months ago. These expectations weighed heavily on the Treasury market last week, as long-term yields posted their largest weekly rise this year. (we/)
Yields on 10-year bonds rose 4.39%, having risen 24 basis points last week alone, and threaten to breach a key bear target of 4.50%.
Higher yields make bonds more attractive than stocks while raising the discount level of future cash flows and possibly the cost of capital for companies.
It was also in the spotlight, rising to a record high above $105,000 as it extended gains on bets that Trump's return would lead to a crypto-friendly regulatory environment.
The attention of central banks
Nasdaq futures were a fraction firmer on Monday. EUROSTOXX 50 futures rose 0.1%, while rose 0.2% and 0.1%.
MSCI's broadest index of Asia-Pacific shares outside Japan was little changed, after being flat last week.
The South Korean Stock Exchange index rose by 0.1%, while the South Korean index stabilized on government support pledges.
A batch of surveys on global manufacturing are also due out on Monday, while US retail sales will be released on Tuesday and a headline inflation report on Friday.
The Bank of Japan, the Bank of England and the Bank of Norway are expected to remain unchanged on Thursday, while the Riksbank is expected to cut interest rates, perhaps by 50 basis points.
In currency markets, the dollar received support from rising yields. This has put pressure on a wide range of emerging market currencies, leading to intervention in some cases.
The dollar also held firm against the yen at 153.93, after jumping about 2.5% last week. The index settled at 106.870 after rising by 0.9% last week.
The euro appeared volatile at $1.0518, affected by the credit rating agency Moody's unexpectedly downgrading France on Friday.
This action came a few hours after French President Macron appointed veteran centrist François Bayrou as the country's fourth prime minister within a year.
Political uncertainty also hung over South Korea, as the Finance Ministry promised to support markets after the impeachment of President Yeon Suk-yul.
A strong dollar combined with rising bond yields held gold at $2,651 an ounce. (Ghoul/)
Oil prices received support at their highest levels in about three weeks due to expectations that imposing additional sanctions on Russia and Iran may lead to a reduction in supplies. (or)
The futures price fell 13 cents to $74.36 per barrel, while it fell 22 cents to $71.07 per barrel.
