NEW YORK/LONDON/SINGAPORE: US stocks wrapped up Christmas week on Friday with retracements of double-digit uptrends, and, alongside the dollar to a smaller degree, succumbed to profit taking in illiquid markets heading into the last weekend of 2024.
Even with its slight loss on Friday, the US dollar was headed for an almost 7 per cent annual gain, as traders anticipated robust US growth, as well as tax cuts, tariffs and deregulation by the incoming administration of President-elect Donald Trump, would make the Federal Reserve cautious on rate-cutting well into 2025.
Selling in Wall Street's main indexes gathered steam through the morning, chilling the mood after the week started out showing the hallmarks of a classic year-end rally to crown what was already a stellar year.
“The Santa Claus rally came a bit earlier this year, and I think this is profit taking ahead of another holiday-shortened week next week," said Jeff Schulze, head Of economic and market strategy at Clearbridge Investments. "That’s another reason I think this isn’t causing more apprehension heading into a weekend. It’s not uncommon for the market to hit air pockets when the volumes are light." Selling in Wall Street's main indexes gathered steam through the morning, chilling the mood after the week started out showing the hallmarks of a classic year-end rally to crown what was already a stellar year.
“The Santa Claus rally came a bit earlier this year, and I think this is profit taking ahead of another holiday-shortened week next week," said Jeff Schulze, head Of economic and market strategy at Clearbridge Investments. "That’s another reason I think this isn’t causing more apprehension heading into a weekend. It’s not uncommon for the market to hit air pockets when the volumes are light." For 2024, the Dow is up 14 per cent, the S&P 500 is up 25 per cent and the tech-heavy Nasdaq is up 31 per cent.
"I’ve heard anecdotes that pension funds are rebalancing ahead of year-end, selling stocks and buying bonds," said Steve Sosnick, chief market strategist at Interactive Brokers, who added he could not verify.
"It would explain the sudden sell-off on no news. And of course, if large funds are selling stocks en masse, the megacap tech stocks would bear the brunt because of their heavy weighting in major indices." MSCI's broad global share index fell 0.59 per cent on Friday, and was 1.45 per cent higher for the week.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.1 per cent, marking a 1.5 per cent weekly rise, while Tokyo's Nikkei rose 1.8 per cent.
Europe's Stoxx 600 rose 0.67 per cent on Friday and was about 1 per cent higher for the week.
"There is some potential upside left for this bull market, but it is limited," said Luca Paolini, chief strategist at Pictet Asset Management "(Trump's) inauguration day is a potential inflection point and all the (prospective) good news will be in the price by then," Paolini added.
The dollar index, which measures the currency against six other major currencies, eased 0.06 per cent, with a 0.2 per cent weekly gain, and showed a 6.6 per cent 2024 gain.
Dollar/yen was down 0.06 per cent, but near Tuesday's 5-1/2 month high. The greenback was also showing a 5.4 per cent gain this month against the beleaguered yen and a near 12 per cent advance for 2024. The euro, was steady, not far from November's two-year low and showing a 5.6 per cent loss year to date.
The BoJ held back from a rate hike this month, which weighed on the yen. Governor Kazuo Ueda said he preferred to wait for clarity on Trump's policies, underscoring rising angst among central banks worldwide of US tariffs hitting global trade.
Fed Chair Jerome Powell said earlier this month that US central bank officials "are going to be cautious about further cuts" after an as-expected quarter-point rate reduction.
The US economy also faces the impact of Donald Trump, who has proposed deregulation, tax cuts, tariff hikes and tighter immigration policies that economists view as both pro-growth and inflationary.
Traders, meanwhile, anticipate the Bank of Japan will keep its monetary policy settings loose and the European Central Bank will deliver further rate cuts, neither positive for their currencies.
Traders are pricing in 37 basis points of US rate cuts in 2025, with no reduction fully priced into money markets until May, by which time the ECB is expected to have lowered its deposit rate by a full percentage point to 2 per cent as the euro zone economy slows.
Higher US rate expectations pulled the 10-year Treasury yield, which rises as the price of the fixed income instrument falls, to its highest since early May early on Thursday, at 4.641 per cent. It was last up 4.6 basis points at 4.625 per cent.
The two-year Treasury yield, which tracks interest rate forecasts, eased 0.4 bp to 4.328 per cent. US debt trends also sent euro zone yields higher, with Germany's benchmark 10-year bund yield rising 7.6 bp to 2.401 per cent on Friday.
Elsewhere in markets, gold prices dipped 0.74 per cent to $2,615.54 per ounce, set for about a 27 per cent rise for the year and the strongest yearly performance since 2011 as geopolitical and inflation concerns boosted the haven asset.
Oil prices firmed as investors awaited news of economic stimulus efforts in China, the world's biggest crude importer. Brent crude futures rose 0.67 per cent on the day to $73.75 a barrel, and was 1.14 per cent higher for the week.
In cryptocurrencies, bitcoin fell 1.26 per cent to $94,485.00. — Reuters
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