Asian Markets Stay Subdued as High Yields Challenge Elevated Valuations

Asian shares kicked off the week on a subdued note, reflecting a cautious mood as high U.S. Treasury yields continued to pressure Wall Street equity valuations while bolstering the U.S. dollar near multi-month highs. With the New Year holiday approaching and a sparse economic calendar, trading volumes remained light.

Investors are looking forward to key economic data releases later in the week, which could offer insights into global growth trends. China’s PMI factory surveys are set for release on Tuesday, while the U.S. ISM manufacturing survey for December is due on Friday.

The MSCI broad index of Asia-Pacific shares outside Japan dipped by 0.2%, though it remains up 16% for the year—a strong performance overall. Japan’s Nikkei index fell 0.9% in early trading but has gained an impressive 20% in 2024.

South Korea’s markets, however, have struggled, weighed down by political uncertainty in recent weeks. The main index is down 9% for the year, though it saw a modest rebound of 0.3% on Monday. Adding to the country’s woes, shares of Jeju Air hit a record low following a tragic plane crash that claimed 179 lives.

Chinese blue-chip stocks rose 0.3% and are up nearly 16% for the year. Notably, most of these gains were concentrated in September after Beijing introduced stimulus measures aimed at boosting the economy.

READ ALSO: Oil Prices Slip Amid Quiet Trade as Markets Eye Key China and U.S. Economic Data

In Europe, futures indicated modest movements, with EUROSTOXX 50 futures inching up 0.1%, while FTSE and DAX futures remained largely unchanged. In the U.S., S&P 500 and Nasdaq futures dipped by 0.1%.

Wall Street closed last week with a broad-based sell-off, though the decline lacked a clear catalyst and occurred during low trading volumes. For the year, the S&P 500 has gained 25%, and the Nasdaq has surged 31%.

However, these gains are increasingly being scrutinized against high Treasury yields, which offer more attractive risk-free returns compared to equities.

Yields on 10-year Treasuries are near eight-month highs, ending the year at 4.631%, about 75 basis points higher than where they started, despite the Federal Reserve cutting interest rates by 100 basis points in 2024.

READ ALSO: Jimmy Carter: President Biden Declares January 9 as a National Day of Mourning

“The continued rise in bond yields, driven by the reassessment of less restrictive monetary policy expectations, creates some concern,” said Quasar Elizundia, a research strategist at Pepperstone. “If the Fed maintains a restrictive stance longer than expected, it could temper corporate earnings growth in 2025, influencing investment decisions.”

The widening gap in interest rates has supported the U.S. dollar, which has gained 6.5% against a basket of major currencies in 2024.

The euro has lost over 5% against the dollar, hovering near a two-year low at $1.0427. The dollar also held firm against the yen at 157.79, with the possibility of Japanese intervention preventing further gains toward the 160 mark.

Gold prices, meanwhile, have faced headwinds from the strong dollar but are still up 28% for the year, trading at $2,624 per ounce. Oil markets have struggled throughout 2024, with demand concerns, particularly from China, capping prices. Brent crude edged up by 6 cents to $74.23 a barrel, while U.S. crude added 1 cent to $70.61 per barrel.