Stocks in Asia May Lack New Year Cheer: Markets Wrap

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(Bloomberg) — Asian equities are poised to trade with little momentum, after US stocks last week retreated from near all-time highs in a blip for a market notching its longest weekly advance since 2004.

Australian benchmarks opened flat on the first trading day of the new year, while Japan — hit by a powerful earthquake on New Year’s Day that killed at least four people and triggered a widespread tsunami warning — is closed for a national holiday. Chinese shares were set to edge higher.

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Signs of exhaustion emerged after an over $8 trillion surge in the S&P 500 last year, with the gauge still notching its ninth straight week of gains. Traders have looked past Federal Reserve uncertainty, recession angst and geopolitical risks. And many who came into 2023 dreading all that have ended up scrambling to chase the rally.

“The market shows signs of fatigue and undoubtedly needs to consolidate,” said Quincy Krosby at LPL Financial. “As long as participation remains broad, the bullish sentiment should carry the indexes as they navigate geopolitical and domestic scenarios, and an overarching positive consensus that 2024 will be a similarly strong year.”

Investors will be monitoring Chinese equities and exporter-oriented Caixin manufacturing data Tuesday after President Xi Jinping used his annual new year address to pledge strengthening of economic momentum and job creation, while acknowledging some companies and citizens had endured a difficult 2023.

“We will consolidate and strengthen the momentum of economic recovery, and work to achieve steady and long-term economic development,” Xi said in the televised message Sunday, beamed to his nation’s 1.4 billion people. China’s much-anticipated post-pandemic economic boom failed to materialize in 2023.

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Meanwhile, energy markets may be impacted by Iran dispatching a warship to the Red Sea after the US Navy destroyed three Houthi boats, a move that risks ratcheting up tensions and complicating Washington’s goal of securing a waterway that’s vital to global trade.

Oil advanced in Asian trading after posting its biggest annual drop since 2020 as war and OPEC+ production cuts failed to propel prices higher in a year dominated by supply growth outside of the grouping. Emerging-market currencies closed out their best year since 2017 as the outlook for lower interest rates in the US revived investor appetite for risk.

Fear of Missing Out

Trading has been fueled by the artificial-intelligence boom, stretched positioning and the “fear of missing out,” with the S&P 500 soaring 24% in 2023, while the Nasdaq 100 had its best year since 1999. Chipmakers saw their biggest annual gain in more than a decade, led by major AI players Nvidia Corp. and Advanced Micro Devices Inc.

Equity markets have gone up so quickly that they’re highly vulnerable to a pullback if the US economy slips into even a mild recession, according to RBC Global Asset Management. Rate cuts are likely to happen in 2024, but the global economy hasn’t yet absorbed the full impact of almost two years of tightening, RBC economist Eric Lascelles said.

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“What’s baked into the cake is a sizable jump in earnings, which is really only achievable in a soft-landing scenario,” Lascelles said.

Following a nine-week winning streak, the S&P 500 has posted average and median 12-month forward returns of 8.1% and 12.2%, respectively, Turnquist said, citing data going back to 1950. Seven out of nine occurrences produced positive results, he noted.

After a year of massive swings and numerous head fakes, the US 10-year yield ended 2023 pretty close to where it began. It’s an almost farcical conclusion to 12 months of trading that saw it tumble to as low as 3.25% in the wake of March’s banking crisis — only to surpass 5% just a few months later.

Key inflation data endorsing a growing narrative that central bankers will aggressively cut rates in 2024 fueled solid gains for both equities and bonds in the last two months. The rally was also driven by Fed Chair Jerome Powell’s dovish pivot at the December policy meeting.

“The notion that the major central banks have surely done enough to quell the inflationary surge of 2022-23 is powering the rally,” said Brian Barish at Cambiar Investors LLC. “It’s not hard to imagine new things for the markets to be concerned by, such as elections, the sizable bond funding requirements of the US government, and/or any notion that inflation resurges anew. But for now, there’s not much news and not a lot of sellers.”

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Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 8:43 a.m. Tokyo time
• Hang Seng futures rose 0.2%
• Australia’s S&P/ASX 200 rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1037
• The Japanese yen was little changed at 140.96 per dollar
• The offshore yuan was unchanged at 7.1240 per dollar
• The Australian dollar was little changed at $0.6810

Cryptocurrencies

• Bitcoin rose 1.1% to $44,097.06
• Ether rose 0.4% to $2,347.27

Bonds

• Australia’s 10-year yield advanced one basis point to 3.96%

Commodities

• West Texas Intermediate crude rose 0.3% to $71.89 a barrel
• Spot gold fell 0.1% to $2,062.98 an ounce

This story was produced with the assistance of Bloomberg Automation.

(Corrects time reference in third paragraph)

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