Asian Stocks Poised for Weak Open After US Losses: Markets Wrap

(Bloomberg) -- Asian stocks are set for a weak opening after US equities dropped on Friday, led by losses in technology shares.

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Futures in Japan and Australia both pointed to declines, as did US contracts. Among other potential negatives were comments from US Treasury Secretary Janet Yellen that the Treasury may hit its new debt limit in mid-January. Trading is likely to remain slim — amplifying potential moves — due to the year-end holiday season.

A decline for the MSCI Asia Pacific Index on Monday would snap a five-day rally, and trim the gauge’s gain this year from the current 8%. Shares in the region have advanced this year as central banks eased monetary policy and tech stocks rallied amid optimism over artificial intelligence.

“With the sour leads from US equity, we look to start the week on a soft tone to the Asian equity markets,” Chris Weston, head of research for Pepperstone Group, wrote in a note. “Again, local markets are at the mercy of any remaining end-of-year portfolio flows, and the potential for more active managers to reduce risk, sensing limited remaining reasons to chase the tape from here.”

The S&P 500 index slipped 1.1% Friday while the Nasdaq 100 dropped 1.4%. While every major industry group saw losses, tech megacaps bore the brunt of the selling. That’s after a surge that has seen the so-called “Magnificent Seven” account for more than half of the US equity benchmark’s gains in 2024.

“I think Santa has already come — have you seen the performance this year?” said Kenny Polcari, a strategist at SlateStone Wealth LLC. The coming week “is another holiday-shortened week, volumes will be light, moves will be exaggerated. Don’t make any major investing decisions.”

Treasuries slipped last week, with the 10-year yield climbing 10 basis points to 4.63%, as the Federal Reserve signaled the likelihood of fewer interest-rate cuts in 2025. The Bloomberg Dollar Spot Index gained 0.5%, extending a winning year with gains driven by the anticipation of “America First” policies from President-elect Donald Trump.

Treasury Secretary Yellen said her department is likely to begin taking special accounting maneuvers sometime in mid-January to avoid breaching the US debt limit, and urged lawmakers to take action defending the “full faith and credit” of the US. The extra headroom is likely to be exhausted by Jan. 14 to 23, Yellen said.

High Expectations

This year’s rally in US equities has driven the expectations for stocks so high that it may turn out to be the biggest hurdle for further gains in the new year. The bar is even higher for tech stocks, given their gains in 2024.

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