Asian shares touched five-month highs on Thursday as market wagers on ever-more aggressive rate cuts extended a huge rally in U.S. stocks and bonds, but also left plenty of scope for disappointment next year.
The S&P 500 has climbed 14 per cent in just two months to within a whisker of its all-time closing peak, while its price to earnings ratio is up by a quarter on the year at 24.0.
MSCI’s broadest index of Asia-Pacific shares outside Japan has also gained 10 per cent in two months and added another 0.3 per cent on Thursday to its highest since August.
Japan’s Nikkei was off 0.4 per cent as a rebound in the yen has kept its gains for December to a minimum.
Chinese shares have generally missed out on the global cheer as foreign investors shun the country, worried about economy’s faltering recovery and tensions with the United States. Blue chips were up 0.5 per cent on Thursday, but are down 4 per cent for December so far.
EUROSTOXX 50 futures added 0.3 per cent and FTSE futures 0.2 per cent. S&P 500 futures edged up 0.1 per cent to another record high, while Nasdaq futures firmed 0.2 per cent.
A lack of major news has not stopped investors from ramping up bets on rapid-fire rate cuts from the Federal Reserve. Futures now imply an 88 per cent chance of a rate cut as early as March, a huge swing from a month ago when the probability was just 21 per cent.
The market has about 157 basis points of easing priced in for 2024, and sees rates reaching 3.00-3.25 per cent over 2025.
“The rapid decline in inflation is likely to lead the Fed to cut early and fast to reset the policy rate from a level that most participants will likely soon see as far offside,” wrote analysts at Goldman Sachs in a note.
“We expect three consecutive 25bp cuts in March, May, and June, followed by one cut per quarter until the funds rate reaches 3.25-3.5 per cent in 2025Q3. Our forecast implies 5 cuts in 2024 and 3 more cuts in 2025.”
BOND BULGE
Yields on 10-year Treasury notes stood at 3.812 per cent, having hit a five-month low overnight. The two-year yield was down at 4.273 per cent, after being as high as 5.295 per cent as recently as October.
Reuters
