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Asia shares fall; Chinese equities slide more than 1%

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Investors cautious ahead of Trump's Jan. 20 inauguration

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Strong dollar leaves yen struggling

By Rae Wee

SINGAPORE, Jan 2 (Reuters) - Asian stocks began the year

on a dour note on Thursday as they struggled for traction after

a jittery close to 2024, while the U.S. dollar charged higher

and investor sentiment stayed cautious ahead of Donald Trump's

return to the White House.

The start of the New Year was shaping up to be a less

favourable one for equities, as uncertainty over the policies of

incoming U.S. President Trump and a more hawkish Federal Reserve

outlook looked set to dominate the market rhetoric for now.

While global shares closed out 2024 with a

strong yearly gain of nearly 16%, they had clocked a monthly

loss of more than 2% in December.

The same was the case for MSCI's broadest index of

Asia-Pacific shares outside Japan, which slid

1.2% in December though registered a gain of more than 7% for

2024.

The index was last down 0.5% in the early Asian session on

Thursday, with volume thinned given a trading holiday in Japan.

"I think we're now in a bit of a twilight zone between now

and January 20," said IG market analyst Tony Sycamore.

Trump will be sworn in as president of the United States on

Jan. 20 for his second term in office.

"It's very unusual for stocks not to get a positive December

... and that worries me a little bit, because when markets don't

go up at times like this when they should be going up, it

generally means that there are other concerns," said Sycamore.

"There's a pretty common consensus out there that Trump's

going to run the economy red hot."

Chinese stocks similarly fell at the open, with the CSI300

blue-chip index last down 1.43% while the Shanghai

Composite Index lost 1%.

Hong Kong's Hang Seng Index slid 1.74%.

Investors are closely monitoring China's economic recovery

in 2025 after officials pledged a slew of support measures to

promote growth, though Trump's talk of tariffs in excess of 60%

on imports of Chinese goods could pose significant headwind.

"To avoid a more material slowdown as domestic obstacles and

external pressures look set to mount, China will remain heavily

reliant on policy support," said Yingrui Wang, China emerging

market economist at AXA Investment Managers.

"With Donald Trump's return to the White House amplifying

external risks and an already fragile domestic economy, a

debt-deflation trap leading to a generational downturn could be

perilously close if upcoming stimulus measures are delayed or

misdirected."

Elsewhere, South Korea's KOSPI fell 0.07%. The index

was Asia's worst performer in 2024, with a loss of more than 22%

in dollar terms owing in part to a deepening political crisis.

DOLLAR SHINES

All that global uncertainty, along with expectations of

fewer Fed interest rate cuts this year, left the safe-haven

dollar on the front foot on Thursday.

A wide interest rate difference between the U.S. and other

economies has cast a shadow over the foreign exchange market,

resulting in most currencies declining sharply against the

dollar in 2024.

The dollar rose 0.3% to last trade at 157.43 yen,

leaving the Japanese currency sliding toward its lowest level in

more than five months.

The euro ticked 0.06% higher to $1.0360 but

strayed not too far from a more than one-month trough, while

sterling eased 0.03% to $1.2522.

Markets are now pricing in about 42 basis points worth of

rate cuts from the Fed this year, compared with more

than 100 bps from the European Central Bank and 60

bps from the Bank of England.

"We now expect the Fed to make just two 25 bps cuts in 2025

by skipping cuts in January and May, and instead cutting in

March and possibly June," said Eli Lee, chief investment

strategist at Bank of Singapore.

Trading of cash U.S. Treasuries was closed on Thursday owing

to the Japan market holiday, but futures pointed to a

rise in yields. Yields rise when bond prices fall.

"We see further upward pressure on long-dated U.S. Treasury

yields and have a 12-month 10Y UST yield forecast of 5.00%,"

said Lee.

In commodities, oil prices nudged higher on Thursday, with

Brent crude futures up 0.56% to $75.06 a barrel. U.S.

West Texas Intermediate crude gained 0.6% to $72.15.

Spot gold traded 0.4% higher at $2,634.77 an ounce.

The yellow metal had a banner year in 2024, surging more than

27% in its largest annual gain since 2010.