Asian shares finish November with a strong performance, helped by Fed cuts

Asian shares will end a difficult November on a more stable footing as renewed hopes of a U.S. interest rate cut have helped calm valuation fears and Treasuries are rallying for the fourth consecutive month.

The U.S. market, which was closed for Thanksgiving overnight, is due to have a shorter session on Friday. This means that activity will be more muted across all major asset classes than usual. The majority of European stocks were higher while currencies were more calm.

MSCI's broadest Asia-Pacific share index outside Japan was flat Friday. It is now on track to gain 3% in the coming week, its first weekly increase in four weeks. It was down 2.7% for the month.

Nikkei, the Japanese stock index, was not much moved either. It was on track for a rise of 3,2% per week. It was down 4.3% for the month.

South Korean shares fell 1%, but the central bank of the country held rates at the same level and announced the end of the easing cycle. The index has still gained 2.5% this week.

The global equity markets were unusually volatile in November, as fears about the sky-high valuations of tech stocks shook markets. Meanwhile, a U.S. shutdown lasted a record 43 consecutive days. Bitcoin, the risk-barometer, fell 17% in November.

Federal Reserve officials are cautious due to the lack of data from the shutdown, but Fed Governor Christopher Waller, and New York Fed president John Williams, have expressed support for a cut in rates next month. This has helped stabilize the sentiment.

CME FedWatch shows that Fed funds futures indicate an 85% probability of a rate reduction next month. This is a dramatic change from the 30% chance a week ago.

Vincenzo Vedda is the chief investment officer of DWS. He said: "If I combine everything, and compare valuations to past bubbles, for example, then I don't think we are there yet."

"We think that the inflation is generally under control... In general, we expect a decent growth in the coming 12 months... You have a favourable environment for risky assets.

The Hang Seng Index in Hong Kong rose 0.3%, while the blue-chip index in China fell 0.1%.

BOJ HIKE IS IN VIEW

The data showed that Tokyo's core consumer prices rose by 2.8% from November of last year, which was above the forecasted 2.7% increase. This is just one of a number of data points that has kept the bets on a Bank of Japan rate hike alive.

Markets are now pricing in a rate hike as early as next month. As the yen fell and political pressure to keep rates low waned, more BOJ board members have signalled a rate hike.

The yen was unchanged at 156.37 to the dollar after rebounding from a 10-month-low of 157.9, which was hit last week. Investors await the Japanese authorities' intervention after weeks of verbal browbeating to stop the currency's steady decline.

The dollar's performance on the currency market was stable against its major counterparts, but it was expected to suffer a loss of 0.7% per week, the largest since July.

Markets bet on the end of policy easing cycles for both the Aussie and Kiwi. The minutes of the European Central Bank meeting show that policymakers were also not in a hurry to lower rates.

The prospect of Fed policy easing in December boosted the rally for Treasuries. Benchmark 10-year Treasury Yields were at 4.0094%, and set to drop by 10 basis points each month for the fourth consecutive month.

Oil prices were essentially unchanged on Friday, but they were headed for a fourth consecutive month of losses due to the U.S. pushing for the peace plan in the Ukraine-Russian war. Brent crude futures for the front-month, which expires on Friday, remained unchanged at $63.34 per barrel.

The spot gold price rose 0.7%, to $4,186 an ounce. This brings the monthly gain up to 4.6%. However, they are still a long way from the record high $4,381.

(source: Reuters)