Asian Stocks Retreat and Dollar Gains Ahead of US Thanksgiving

By Ankur Banerjee

SINGAPORE (Reuters) - Asian stock markets experienced a decline on Thursday, and the dollar saw a slight increase as investors reflected on recent U.S. economic data. This data indicated that while there was progress in reducing inflation, the momentum had stalled. Concerns over geopolitical tensions also contributed to a cautious risk appetite among traders.

The upcoming U.S. Thanksgiving holiday is likely to result in thin trading volumes for the rest of the week, leading investors to be more hesitant about making any significant investment decisions.

MSCI's broadest index tracking Asia-Pacific shares, excluding Japan, fell by 0.4%. Despite this, there was a slight uptick of 0.48% earlier in the day.

Investor sentiment remained fragile, grappling with the potential for a tariff conflict due to U.S. President-elect Donald Trump's policies, along with reports of violent incidents in Ukrainian cities.

Futures indicate that European markets are poised for a stronger opening, with Eurostoxx 50 futures up by 0.57%, German futures climbing by 0.38%, and French markets experiencing a 0.17% increase.

During the European trading session, much attention will be directed toward the French markets as investors express concern about the new government's stability and its budget. The French blue-chip stock index plummeted to its lowest point since early August on Wednesday, raising alarm among traders.

Recent data revealed that U.S. consumer spending experienced a modest increase in October, slightly surpassing market expectations. However, the trend to lower inflation rates seems to have stalled in recent months, complicating the economic landscape.

The inability to effectively bring inflation back to the Federal Reserve’s target rate of 2%, combined with the anticipated rise in tariffs on imported goods, creates uncertainty for future interest rate adjustments. While many analysts expect the Fed to implement a third rate cut in December, published minutes from the Federal Open Market Committee's meeting on November 6-7 suggest differing opinions among officials regarding the necessary extent of future cuts.

Kristina Clifton, an economist at the Commonwealth Bank of Australia, stated, "We continue to expect the FOMC to cut the Funds rate by 25 basis points at its December meeting. However, another solid month of core inflation in November will challenge the FOMC's perspective that inflation is trending down to 2% per year. If there are doubts about sustainable inflation converging to the target, it could dampen market expectations for a December cut."

Market analysts are currently pricing in a 65% likelihood that the Fed will reduce rates next month and anticipate a total of 75 basis points of easing by the end of 2025, as suggested by data from LSEG.

Strategists from Macquarie expressed concerns that the outlook for inflation has become more uncertain, especially with potential tariff increases proposed by the incoming Trump administration, which could spark renewed price pressures.

In a surprising decision, South Korea's central bank opted for a second consecutive interest rate cut during its meeting on Thursday, responding to a sluggish economy and inflation rates that were lower than anticipated. Following this announcement, the South Korean won faced a decline.

The Japanese yen traded at 151.53 per dollar, down by 0.29%, but remained near a one-month peak reached in the prior session. The Asian currency is set for its strongest weekly performance since early September, fueled by rising expectations of a potential interest rate hike from the Bank of Japan in the coming month.

The euro saw a slight decline after gaining 0.7% the previous day, as investors moderated their expectations for rate cuts. This follows comments from European Central Bank board member Isabel Schnabel, who suggested that any cuts should be gradual and aim for a neutral rather than accommodative stance.

The dollar index, which compares the U.S. currency to a basket of six major currencies, climbed by 0.11% to 106.23, recovering from a 0.7% drop earlier.

In the commodities market, oil prices remained stable as concerns over Middle Eastern supply disruptions eased following a ceasefire agreement between Israel and Hezbollah. Oil futures stayed steady at $72.8 per barrel, while U.S. West Texas Intermediate crude held firm at $68.7 per barrel.

Gold prices were flat at $2,634 per ounce, although they are on track for a nearly 4% drop in November, marking the most significant monthly decline in over a year.

Asian, Stocks, Dollar, Thanksgiving, Markets