Asia Eyes Muted Open, Oil in Focus During Tensions: Markets Wrap

(Bloomberg) — Asian stocks are set for a muted open as trading resumes after US shares edged higher Friday, buoyed by optimism of deep rate cuts next year. Oil advanced.

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Equity futures in mainland China point to an early rise while contracts for Japanese benchmarks were flat. Australian markets remain closed for a holiday. The S&P 500 notched an eight-week winning streak on Friday — the longest in more than five years on signs price pressures in the US were easing. US stock futures were little changed in Asia trading.

Some on Wall Street are positioning for further stock gains ahead as the session kicked off the start of the “Santa Claus rally” — a seasonal trend where equities tend to climb into the first few days of the new year.

“The soft landing narrative is fully in charge: The economy remains strong while inflation keeps trending down,” Louis Navellier of Navellier & Associates wrote. The veteran growth investor expects the year to end at highs, “the only ones with lumps of coal in their stocking this season are the bears.”

Oil edged higher after A.P. Moller-Maersk A/S said it’s preparing to resume shipping through the Red Sea, thanks to a new multinational maritime task force to protect vessels from attacks by Houthi rebels from Yemen. Japanese shipping stocks fell as much as much as 6.1% on Monday after rising 17% last week.

Geopolitical tensions however remain front of investors minds into the new year as tensions in the Middle East look set to increase. Iranian President Ebrahim Raisi said Israel will pay a price for killing a senior commander of its Revolutionary Guard in air strike in Damascus on Monday. The US accused Iran at the weekend of an attack on a tanker in the Indian Ocean.

READ: Israel Sees Defense Spending Climbing $8 Billion as War Rages

US Growth Resilience

Global markets have been buoyed in recent months as traders bet major central banks including the Federal Reserve will aggressively cut interest rates next year as inflation falls. Bond yields have tumbled while the S&P 500 is nearing a fresh record.

Data released last week showed signs of resilience in US growth while the Fed’s preferred underlying inflation metric barely rose in November. Additional reports Friday showed consumers were also gaining conviction that inflation in the world’s largest economy was on the right track despite a bumpy housing market recovery.

That helped cement investor expectations for earlier and deeper interest rate cuts next year, despite pushback from several Fed policymakers. Swaps traders are betting interest rates will be eased by more than 150 basis points in 2024, double the Fed’s forecast.

Read more: Fed’s Preferred Inflation Gauges Cool, Reinforcing Rate-Cut Tilt

Elsewhere, most major currencies traded within tight ranges while Bitcoin edged higher, nearing $44,000.

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