Stocks, Bonds Fall as Rally Stalls Before Year-End: Markets Wrap

South Carolina Digital News December 21, 2023

21 3 minutes read

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(Bloomberg) — European stocks are set to follow losses in the US and Asia as traders dial back optimism over possible Federal Reserve interest-rate cuts and trim positions before the long Christmas weekend.

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Futures on Europe’s stock benchmark declined as much as 0.8% after the S&P 500 and Nasdaq 100 both dropped 1.5% Wednesday. The broader MSCI All Country World Index of shares slipped for a second day after it had powered ahead for the previous nine sessions. Treasuries edged lower, while most currencies traded in narrow ranges with volatility easing as the year-end holiday season approaches.

“The dovish tone by the Fed in December has been grossly over-exaggerated in terms of its impact on asset prices,” Mark Konyn, chief investment officer at AIA Co. in Hong Kong, said on Bloomberg Television. “The market will be little disappointed in terms of when those cuts start to take effect.”

Risk assets are taking a breather after this month’s rally that saw global stocks climb to their highest level in 2023. Overbought conditions in the US have also contributed to the selling as gauges of relative strength rose to levels that in the past have accurately predicted declines.

Japanese stocks were among the biggest losers in Asia led by a selloff in index heavyweight Toyota Motor Corp. The technology-heavy markets of South Korea and Taiwan also dropped.

Mainland China shares bucked the trend, heading for their best day since early November after data showed signs of recovery in the country’s ailing property market. Chinese equities appeared to shrug off a Wall Street Journal report, which said the Biden administration is discussing raising tariffs on some China goods, citing people familiar with the matter.

The dollar weakened against all its Group-of-10 peers after US 10-year yields dropped to a five-month low on Wednesday, amid the outlook for lower Fed interest rates.

Toyota Slumps

Toyota Motor shares slumped after subsidiary Daihatsu Motor Co.’s offices were raided over a safety scandal and the automaker recalled 1 million cars in the US. The raid came after revelations the carmaker and supplier manipulated the results of collision safety tests dating as far back as 1989.

Citigroup Inc. decided to exit the distressed-debt trading business, according to people briefed on the matter. Morgan Stanley, meanwhile, considered allocating a portion of its balance sheet to a new private credit fund, according to people with knowledge of the plans. FedEx Corp., a bellwether for the US economy, reported diminished profits, heightening concerns about a slump.

In commodities, oil dropped back toward $74 per barrel as traders’ focus shifted away from the crisis on the Red Sea towards surging supply from US producers. Gold advanced to trade above $2,030 per ounce.

Bitcoin rose, extending Wednesday’s gains as the Securities and Exchange Commission nears a Jan. 10 deadline to reject or approve ETFs. The token rose as high as $44,294 on Wednesday.

Friday looks potentially busy with data releases including UK GDP, US consumer sentiment and so-called core personal-consumption expenditures price index — the Fed’s preferred inflation gauge.

Key events this week:

Bank Indonesia rate decision, Thursday
US GDP, initial jobless claims, Conf. Board leading index, Thursday
Nike earnings, Thursday
Japan inflation, Friday
UK GDP, Friday
US personal income and spending, new home sales, durable goods, University of Michigan consumer sentiment index, Friday