Asian shares fluctuate after downbeat US session

Asian shares traded in a tight range early on Friday after the dollar lifted even as the Federal Reserve’s hawkish pivot continued to weigh on US equities and bonds.

Shares in Australia and South Korea fell while Hong Kong equity futures fell. Stocks in Japan edge higher after yen weakens. U.S. contracts fell on pace for its worst week since September, after the S&P 500 ended marginally lower on Thursday. The Nasdaq 100 fell 0.5%.

Treasuries in Asia were little changed after selling pressure on Thursday lifted the 10-year yield to 4.57%, last seen in May. Policy-sensitive two-year yields have fallen, pushing the spread between the two maturities to levels last seen two years ago. The Bloomberg Dollar Index rallied earlier in the week to hover around 2022 highs. Australian and New Zealand yields rose early on Friday.

The yen weakened against the dollar even as Japan’s key inflation gauge strengthened for the first time in three months. The Bank of Japan added to the cuts on Thursday after keeping borrowing costs unchanged and Governor Kazuo Ueda casting doubt on whether the bank could raise rates in January.

Asia was mixed after data released on Thursday showed resilience in the US economy, undermining the need for an imminent rate cut.

The economy expanded at a faster clip in the third quarter than previously expected, according to the latest gross domestic product data. Consumer spending was marked up. Applications for US jobless benefits fell and US existing home sales topped 4 million in November for the first time in six months. One of the Fed’s preferred gauges of inflation was revised up.

Chair Jerome Powell said markets will be closely watching the last significant data for the year – personal consumption expenditures for November – due Friday, given that future easing will require fresh progress on inflation.

“Investors are getting defensive today,” said Matt Maley, chief market strategist at Miller Tabak + Company. So, if we don’t get some relief from the bond market soon, there might not be a Santa Claus rally this year.”

Elsewhere, President-elect Donald Trump and House Republicans struck a deal to avoid a US government shutdown and suspend the federal debt limit for two years.

Cautious trading in the US on Thursday suggested investors were still digesting expectations of the Fed’s scaled rate cuts for 2025. According to Evercore ISI’s Krishna Guha, what the central bank had planned for the coming year ahead of the meeting was a so-called hawkish pivot.

Powell said Wednesday that some policymakers have begun to weave into their forecasts the potential impact of higher tariffs that Trump could implement.

“The Fed has decided to pad its forecast and pre-positioning for Trump — pulling far ahead of what would otherwise have been a hawkish update in March,” Guha wrote in a note. That makes the Fed’s announcement of a new phase of policy “quite hawkish, but not as hawkish as it looked,” Guha wrote. They expect the US central bank to leave interest rate cuts in January unless cracks appear in the labor market.

The swaps market now suggests a decline of less than two quarter-points for the entirety of 2025, even less than what was implied in the Fed’s so-called dot plot on Wednesday.

The Bank of England kept borrowing costs unchanged at 4.75% on Thursday. Still, money markets now see a strong chance of two quarter-point cuts and a third in 2025 after the nine-member policy committee called for cuts at Thursday’s meeting. Before the announcement, swap traders had priced less than two cuts into next year. The pound fell.

Mexico’s peso pared losses after the country’s central bank cut rates for the fourth consecutive time.

In Asia, data for Friday’s release included inflation for Malaysia and Hong Kong and Taiwan’s export orders for November. China may release its one-year medium-term lending facility rate as early as today.

Elsewhere in Asia, Korea’s gains have weakened to levels that could force the National Pension Service to sell up to $50 billion in foreign exchange to hedge against losses, according to people familiar with the matter.

In commodities, oil was lower on Thursday after the dollar boosted the Fed’s outlook for next year. Gold was flat around $2,593 an ounce on Thursday after two days of declines.