Asian shares declined on Friday as investor hopes for substantial economic stimulus from China were dampened by a lack of concrete details at the Central Economic Work Conference (CEWC). Meanwhile, U.S. Treasury yields experienced their largest weekly rise in over a year, buoying the dollar and reflecting receding expectations for U.S. rate cuts in 2025.
China’s major stock indexes faced significant losses, with the blue-chip CSI 300 and Hong Kong’s Hang Seng each falling over 2%.
The CEWC, a key annual meeting where China outlines its economic priorities, pledged to boost debt and encourage consumption. However, it fell short of delivering the robust, immediate stimulus measures investors had anticipated, leaving markets underwhelmed.
Jian Chang, Chief China Economist at Barclays, noted that the lack of aggressive policies contradicted earlier expectations fueled by a December 9 Politburo statement. “We maintain our view that incremental and reactive policy is more likely than pre-emptive and ‘bazooka’ policy,” said Chang, reflecting skepticism about bold fiscal interventions in the near term.
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The disappointment added to broader concerns about China’s economic outlook, as tensions with the United States are expected to intensify.
With Donald Trump’s potential return to the U.S. presidency, fears of renewed trade conflicts are further weighing on growth prospects. These factors contributed to an 18-basis-point drop in Chinese bond yields this week, marking their steepest fall since April 2018.
Currency markets also faced turbulence. The dollar continued to strengthen, bolstered by the relative appeal of higher U.S. interest rates compared to other major economies. Rate cuts from central banks in Switzerland, Canada, and the European Union this week have amplified this trend.
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The dollar index, which measures the currency against a basket of global peers, rose 0.15% on Friday to 107.12, its highest level in over two weeks. Meanwhile, emerging markets struggled, with the Indonesian rupiah hitting a four-month low, prompting multiple interventions by the country’s central bank.
In India, the Reserve Bank of India (RBI) was seen selling dollars through state banks to support the rupee, which is hovering near record lows.
Longer-dated U.S. Treasury yields surged this week, reflecting diminished expectations for rate cuts in 2025. The 10-year benchmark yield climbed 17 basis points, while 30-year yields saw a 22-basis-point rise—the largest weekly increase in over a year. The strong yield environment has continued to attract investors, further supporting the dollar.
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European markets presented a mixed picture. The STOXX 600 index edged down 0.1% on Friday, extending slight losses from the previous day. In contrast, Britain’s FTSE 100 and Germany’s DAX posted gains of 0.14% and 0.36%, respectively, reflecting optimism in select European sectors.
Across the Atlantic, U.S. futures hinted at modest gains, with the S&P 500 futures rising 0.28%. However, the index itself closed slightly lower on Thursday, retreating from its record high on December 6.
The markets’ reaction underscores growing uncertainty in global economic and political dynamics. China’s cautious policy stance and geopolitical risks, coupled with shifting expectations for monetary policy in the U.S., are shaping an increasingly complex investment environment.
Investors are keeping a close eye on developments, from U.S. fiscal policy to China’s economic strategies, as they navigate the challenges of a volatile global market.