Asian shares set to snap two-year losing streak on rate cut wagers
By Ankur Banerjee
SINGAPORE (Reuters) — Asian stocks took a breather on the last trading day of the year and are set to snap their two-year losing streak with investors buoyed by the expectations that the Federal Reserve will start cutting interest rates next year.
MSCI's broadest index of Asia-Pacific shares outside Japan was little changed on Friday but lurked near a five month peak and was headed for a 5% gain in the year after two years of heavy losses.
The index is up over 11% in the last two months as investors ramped up bets that central banks were done raising interest rates and would soon start easing.
Markets are pricing in a 88% chance of the Fed starting its rate cuts in March, according to CME FedWatch tool, compared to 35% chance at the end of November. Traders are also pricing in over 150 basis points of easing next year.
Behind the ramped-up bets is a slew of U.S. economic data that has underscored the strength in the economy as well as the likelihood of the Fed softening its stance.
The only question that the market is focused on is when and not if the central banks will cut rates, leaving ample room for disappointment in 2024.
«Goldilocks bets on soft-landing hopes emboldened by US exceptionalism and aggressive rate cut bets inspired by emphatic dis-inflation risk being wrong-footed,» said Vishnu Varathan, head of economics and strategy at Mizuho Bank in a note.
Instead, he wrote, «rate cuts are likely to be measured and gradual.»
In Asia, the best performing major stock market in 2023 was Japan's Nikkei with a gain of 28%, its strongest yearly performance in a decade. Taiwan's stock market was close behind with a 26.6% rise in the year. India's Nifty is the third best gainer with a 20% rise in
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