Asia shares turned mixed, and gold hit a record above $2,100. At the beginning of a busy week for economic data that will test market predictions for early and aggressive rate cuts from major central banks in the next year, Asian equities turned neutral on Monday, while gold rocketed to all-time heights above $2,100. This action occurred at the beginning of a busy week for economic data.

The United States payroll data for November, scheduled to be released on Friday, must be robust enough to support the economy’s soft landing scenario. Still, it must not be so robust that it threatens the possibility of easing. The median projections indicate that payrolls will increase by 180,000, maintaining the unemployment rate at 3.9%.

Considering that Goldman Sachs forecasts 238,000, which includes many workers returning from strikes, and the unemployment rate is 3.8%, many experts believe the risks are on the upside.

There was also the possibility that the confrontation between Israel and Hamas may escalate into a more widespread conflict, as evidenced by the fact that three commercial vessels were attacked in the southern region of the Red Sea.

Gains in South Korea and Australia primarily contributed to the 0.3% increase in the broadest index of Asia-Pacific equities outside of Japan that MSCI maintains (.MIAPJ0000PUS). The Nikkei (.N225) index saw a decline of 0.6% as the yen continued to extend its recent gains.

There was a 0.5% decrease in the value of the Chinese blue chips (CSI300), while China’s central bank established yet another strong fix for the yuan.

The Chinese government is expected to release its trade numbers later this week. The most recent pattern has been a decrease in shipments to the United States, which has overshadowed Asian improvements.

Futures contracts on the EURO STOXX 50 and the FTSE showed tiny movement. After reaching a 20-month high on Friday, the S&P 500 futures declined by 0.2%, while the Nasdaq futures experienced a loss of 0.3%. Currently, the S&P 500 has gained 19% for the year and is only 4% away from reaching its all-time high.

There have been speculations that the Federal Reserve’s next step would be to reduce interest rates. On Friday, Fed Chair Jerome Powell declined the opportunity to take a strong stance against aggressive market pricing, which contributed to the most recent increase.

The futures market indicates a sixty percent possibility that the Federal Reserve will reduce interest rates as soon as March, an increase from twenty-one percent a week ago. Additionally, futures are priced at around one hundred thirty-five basis points (bps) of reductions for 2024.

Since the March mini-crisis in U.S. banks, the Treasury reversal has been nothing short of astounding. Two-year rates have dropped by 41 basis points in only one week, the most outstanding performance since these levels collapsed.

Therefore, it should not have come as a surprise that some profit-taking occurred on Monday, which resulted in yields on 10-year notes increasing to 4.25%. However, these rates are still significantly below the peak of 5.02% in October.

BULLISH BY ME FOR EM
According to Claudio Irigoyen, a global economist at BofA, “Our baseline scenario is for a soft landing for the United States economy, with positive but below-potential sequential growth for the next six quarters.”

“Starting in June, we expect the Fed to start cutting rates by 25 bp per quarter until reaching a terminal rate of 3% in 2026,” said the economist. “Our year-end 2024 U.S. rate forecasts for two-year and 10-year Treasury bonds are 4.00% and 4.25%, bringing an end to the yield curve inversion.”

The Bank of America notes that returns twelve months after the most recent rate rise tend to be quite favorable, with EM stocks averaging over 10% and total EM bond returns even higher. This indicates that such an outlook should also be beneficial for emerging markets.

At this week’s meetings of the central banks of Canada and Australia, the rates are anticipated to remain unchanged in both countries.

At the same time, the decline in Treasury rates pulled the rug out from under the dollar, notably on the yen, which dropped 1.8% during the previous week and was most recently trading at 146.71 points.

The pressure on yen carry trades has increased due to speculation on the inevitable unwinding of the Bank of Japan’s lenient policies. This speculation can bring the Japanese currency back to its high of around 138.00, reached in July.

At $1.0874, the euro remained unchanged. It had also been growing recently but had a turnaround last week when markets priced in a rate decrease from the European Central Bank for March. Unexpectedly low inflation figures served as the impetus for this decision.

In an interview over the weekend, the ever-hawkish President of the Bundesbank, Joachim Nagel, rebutted the doves. However, given the rapid decline in inflation, the markets believe that the European Central Bank will need to loosen monetary policy to prevent accurate interest rates from increasing.

ECB President Christine Lagarde will have the opportunity to remark on her own at a speech and question-and-answer session later on Monday.

In response to the decline in yields and the dollar, the price of non-yielding gold has increased by 0.9%, reaching $2,088 per ounce. This comes after the price of gold reached a new high of $2,111.39 per ounce.

The oil price has not been so low since there are concerns that OPEC+ may be unable to maintain the supply cutbacks they agreed on. At the same time, oil output in the United States has reached record levels, surpassing 13 million barrels per day, and the number of rigs continues to increase.

In response to the attacks on ships in the Red Sea, Brent crude declined 51 cents to $78.37 per barrel, while U.S. crude lost 44 cents to $73.63 per barrel. These strikes only temporarily assisted.