Dollar stays resilient, Asia shares dip in thin trade

Main focus for investors remains Federal Reserve's rate outlook

SINGAPORE:

Asia shares eased in holiday-thinned trade on Thursday, trimming some of their gains from earlier in the week, while the dollar rose alongside US Treasury yields.

As the year-end approaches, trading volumes have begun thinning out and the main focus for investors remains the Federal Reserve's rate outlook. Markets in Hong Kong, Australia and New Zealand were closed for a holiday on Thursday.

Since Fed Chair Jerome Powell primed markets for fewer rate cuts next year at the central bank's last policy meeting of the year, traders are now pricing in just about 35 basis points of easing for 2025.

That has in turn lifted US Treasury yields and the dollar, with the greenback's renewed strength a burden for commodities and gold. The benchmark 10-year yield ticked up 2.6 basis points to 4.613% and is up roughly 40 basis points for the month thus far. The two-year yield similarly firmed to 4.3489%.

"Given December's hawkish cut, we believe the Fed will skip at the January meeting and wait for more data before definitely resuming, or potentially ending, this cutting cycle," said Tom Porcelli, chief US economist at PGIM Fixed Income. "Given the Fed's shift to less accommodation paired with continued focus on both sides of the dual mandate, we believe the market will have more intense emphasis on economic events in the new year."

In currencies, the dollar was perched near a two-year high against a basket of currencies at 108.15 and was on track for a monthly gain of more than 2%.

The Australian and New Zealand dollars were, meanwhile, among the biggest losers against a dominant greenback on Thursday, with the Australian dollar falling 0.5% to $0.6238. The New Zealand dollar slid 0.58% to $0.5646.

The euro eased 0.18% to $1.0399, while the yen languished near a five-month low and last stood at 157.35 per dollar.

Japan is set to raise scheduled sales of government bonds slightly to 172.3 trillion yen ($1.1 trillion) next fiscal year, the first increase in four years, according to a draft plan seen by Reuters. Yields on Japanese government bonds barely reacted to the news, but were similarly higher on the day in line with their US peers.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.1% but was still headed for a weekly rise of about 1.6%, taking cue from its counterparts on Wall Street earlier in the week.

S&P 500 futures edged 0.08% higher, while Nasdaq futures advanced 0.27%. World stocks looked set to end the year on a high with a second consecutive annual gain of more than 17%, unfazed by escalating geopolitical tensions and various economic and political headwinds globally. That is mostly thanks to a second year of huge gains for shares on Wall Street as artificial intelligence fever and robust economic growth sucked more global capital into US assets. In commodities, spot gold ticked 0.5% higher to $2,626.19 an ounce.