As trading resumed following the Christmas holiday, US equity futures experienced a modest uptick, accompanied by a continued decline in the dollar. Investor sentiment was influenced by expectations of earlier and more substantial interest rate cuts in the upcoming year. The holiday session saw mixed performances in Asian markets, with Hong Kong, New Zealand, and Australia closed for the day. However, emerging Asian currencies, notably South Korea’s won and the Malaysian ringgit, strengthened against a weakening dollar, marking its third consecutive session of losses and reaching its lowest point in almost five months.
The commencement of the “Santa Claus rally,” a seasonal trend where equities traditionally climb in the first days of the new year, prompted optimism among some on Wall Street. The S&P 500 wrapped up an eight-week winning streak on Friday, the longest in over five years, fueled by signs of easing price pressures in the US. Treasuries showed minimal change in the Asian trading session.
Vishnu Varathan, head of economics and strategy at Mizuho Bank, commented on the subdued trading in emerging markets in Asia, describing it as a “silent night.” Wall Street appeared indecisive ahead of Christmas, and the strategy seemed to revolve around avoiding the drag from China while holding on to earlier Santa rallies.
In mainland China, stocks, represented by the CSI 300 Index, experienced a decline, marking its first in four sessions. Despite authorities softening their stance following last week’s move to tighten regulations on the videogame industry, investor sentiment remained weak.
Other notable developments in the region included Singapore’s core inflation easing in November, potentially allowing the central bank to extend its monetary-policy pause to support the economy. In Japan, an auction of two-year sovereign debt witnessed tepid investor appetite, raising speculation about the central bank ending negative interest rates in 2024. Meanwhile, the labor market in Japan remained relatively tight in November, adding pressure on employers to raise wages to fill positions.
Geopolitical tensions lingered as Iranian President Ebrahim Raisi warned that Israel would pay a price for killing a senior commander of its Revolutionary Guard. The US accused Iran of an attack on a tanker in the Indian Ocean over the weekend, contributing to ongoing concerns about tensions in the Middle East.
Oil prices experienced a slight increase after registering the largest weekly gain in over two months. Shipping disruptions in the Red Sea garnered attention following Houthi attacks against vessels in the crucial waterway. West Texas Intermediate traded near $74 a barrel after a 3% rally in the previous week, marking the most significant advance since October.
As the market navigates through the post-Christmas period, attention remains on the evolving geopolitical landscape and the potential impact on various asset classes.
