Mixed Trends in Asian Markets as Gold Surpasses $2,100 per Ounce

Asian markets experienced a mixed performance on Monday, with gold reaching historic highs above $2,100. This comes at the beginning of a busy week for economic data that will scrutinize market expectations for early and aggressive rate cuts by major central banks in the coming year.

Key Points:

1. U.S. November Payrolls Report: The focus is on the U.S. November payrolls report, expected to be solid enough to support a soft landing scenario. Analysts project a rise of 180,000 jobs, maintaining the unemployment rate at 3.9%.
2. Israel-Hamas Tensions: Concerns linger about the Israel-Hamas conflict potentially escalating into a broader conflict, especially with recent attacks on three commercial vessels in the southern Red Sea.
3. Asian Markets: MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.4%, led by gains in South Korea and Australia. Japan’s Nikkei dipped 0.4%, influenced by the strengthening yen. Chinese blue chips eased 0.2%, and China’s central bank maintained a firm fix for the yuan.
4. Upcoming Economic Data: Trade figures for China are expected later in the week, with a trend of softening exports to the U.S. overshadowing gains in Asia.
5. Global Market Futures: EUROSTOXX 50 futures and FTSE futures saw slight gains. S&P 500 futures dipped 0.1%, Nasdaq futures lost 0.2%, with the S&P 500 up 19% for the year.
6. Federal Reserve’s Rate Cut Expectations: Recent market speculation suggests a 71% chance of a Federal Reserve rate cut as early as March, with expectations of around 135 basis points of cuts for 2024.
7. Treasuries and Yields: The turnaround in Treasuries saw two-year yields fall 41 basis points in a week. Profit-taking on Monday nudged 10-year yields up to 4.24%.
8. BofA’s Economic Outlook: Bank of America predicts a soft landing for the U.S. economy, anticipating the Fed to start cutting rates from June, reaching a terminal rate of 3% in 2026.
9. Impact on Emerging Markets: A positive outlook for emerging markets is expected, with historical data indicating positive returns for EM equities and bonds in the months following the last Fed hike.
10. Currency Movements: The dollar weakened, particularly against the yen. Speculation about the Bank of Japan’s policy changes added pressure on yen carry trades.
11. Euro’s Reversal: The euro faced a reversal following soft inflation data, leading to expectations of a March rate cut from the European Central Bank.
12. Gold’s Surge: The decline in yields and the dollar has benefited gold, which added 0.9% to $2,088 per ounce, reaching a record of $2,111.39 per ounce.
13. Oil Prices: Oil prices faced challenges amid doubts about OPEC+ maintaining output cuts and record U.S. oil production. Brent eased to $78.71 a barrel, while U.S. crude fell to $73.95.