Asian Shares Reach Five-Month Highs Amid Massive Rally
Continued Market Optimism
Asian shares have reached five-month highs as market bets on more aggressive rate cuts have extended a significant rally in U.S. stocks and bonds. This growing optimism has left plenty of room for potential disappointment in the coming year.
Impressive Performance
The S&P 500 has surged 14% in the past two months, approaching its all-time closing peak. Additionally, its price-to-earnings ratio has increased by 25% to 24.0 this year.
Positive Trend
MSCI’s broadest index of Asia-Pacific shares outside Japan has also risen 10% in the past two months, reaching its highest level since August. However, shares in Japan were down 0.4% due to the rebound in the yen.
Global Market Dynamics
Chinese shares have not experienced the same level of enthusiasm as foreign investors continue to avoid the country due to concerns about its economy and tensions with the United States. Despite this, Eurostoxx 50 futures and S&P 500 futures continue to show modest gains.
Anticipated Rate Cuts
Investors have significantly increased their bets on rapid-fire rate cuts from the Federal Reserve. March futures imply an 88% chance of a rate cut, a substantial shift from just a month ago when the probability was only 21%.
Forecasted Easing
The market has priced in approximately 157 basis points of easing for 2024, anticipating rates to reach 3.00-3.25% over 2025.
Market Analyst Predictions
Goldman Sachs analysts 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% in 2025Q3. Their forecast implies 5 cuts in 2024 and 3 more cuts in 2025.
Bond and Currency Trends
Yields on 10-year U.S. Treasury notes stood at 3.812%, hitting a five-month low. The drop in yields has weighed broadly on the U.S. dollar and lifted the euro to its highest level since July at $1.1129.
Global Economic Impact
Investors are giving more weight to expectations of rate cuts from the Fed, impacting global risk sentiment and currency trends. The dollar also lost ground to the yen at 141.49 yen, while sterling reached a five-month top of $1.2812.
Commodity Market Stability
Oil prices stabilized after concerns over supplies eased, with Brent crude rising 20 cents to $79.85 a barrel, and WTI crude rising 11 cents to $74.22 per barrel.
By Wayne Cole
