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Asia Shares Start Dec on Cautious Note, Oil Nurses Losses

Asian sharemarkets started the last month of the year on a cautious note after recent strong gains, though growing expectations Europe and the U.S. are poised to cut rates should help ease pressure on local currencies and central banks.

Global oil prices extended losses after a drop of more than 2% overnight as voluntary oil output cuts by OPEC+ producers for the first quarter next year fell short of market expectations. O/R

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.5% after a surge of 7.3% last month, the most since January. Japan’s Nikkei .N225 was flat, having also jumped 8.5% in November in the best month in three years.

Chinese bluechips .CSI300 dropped 0.6% and Hong Kong’s Hang Seng index .HSI fell 0.4%.

“Our sense is that quite a lot of the good news is already in the price. A little bit of profit-taking and rebalancing have probably played in the month-end, obscuring the messaging we typically get from the price action,” said Rodrigo Catril, a senior FX strategist at the National Australia Bank.

Regional surveys of purchasing managers showed mixed results in November. Japan’s factory activity shrank at the fastest pace in nine months, South Korea’s factory activity steadied and China’s manufacturing industry returned to expansion, based on a private survey.

Overnight, data showed that both U.S. and European inflation are cooling as desired. The Federal Reserve’s preferred gauge of inflation – the personal consumption expenditures (PCE) price index – stood unchanged for October, while consumer spending also pulled back.

The major surprise was with euro zone inflation, which missed expectations by a large margin, triggering a slide in the euro EUR=EBS and prompting markets to price in rate cuts of about 110 basis points next year, commencing as early as April. 

Traders are now waiting for Fed Chair Jerome Powell’s Q&A appearance on Friday, with bulls betting the central bank chief will accommodate their early and aggressive U.S. policy easing bets for next year. Fed funds futures imply rate cuts of 115 basis points. 

“We suspect this will be a very tightly choreographed session and will stick to the pre-Waller script of caution when it comes to further hikes but with no hint of easing,” said Robert Carnell, regional head of research, Asia-Pacific, at ING.

Fed Governor Christopher Waller, deemed a hawk, this week hinted at lower interest rates in the months ahead if inflation continued to ease.

Investors are turning more bullish on Asian currencies, a Reuters poll found. Bullish bets on the South Korean won KRW=KFTC, Taiwanese dollar TWD=TP and Philippine peso PHP= were at their highest since early February.

The dollar index =USD hovered near a five-session high at 103.28 against its peers, drawing some support from a sliding euro overnight. That came after a staggering loss of 3% for November, the worst in a year. FRX/

The euro EUR=EBS rose 0.2% to $1.0907, after tumbling 0.7% overnight to a one-week low of $1.0879.

U.S. Treasuries also eased a little after the best month since 2011. The yield on 10-year Treasury notes US10YT=RR slipped 3 basis points in Asia to 4.3264%, on top of a plunge of 52.2 basis points for the month.

Two-year Treasury yields US2YT=RR fell 4 basis points to 4.674%.

In the oil market, Brent crude futures LCOc1 slipped 0.4% at $80.56 a barrel while U.S. West Texas Intermediate CLc1 futures also fell 0.3% to $75.77 a barrel.

Gold prices XAU= was 0.3% higher at $2,042.49 per ounce.

Source : Nasdaq