By Ankur Banerjee and Alun John
SINGAPORE/LONDON (Reuters) -World stocks held steady on Tuesday in cautious year-end trading that has seen investors bracing for the incoming Donald Trump administration by scaling back bets on deep U.S. interest rate cuts in 2025, helping the dollar stand tall against most other currencies.
Volumes were light with a holiday for the New Year looming, with the Santa-rally largely failing to materialise as elevated Treasury yields weigh on high equity valuations and boost the greenback.
MSCI’s world share index was flat on the day, but set to wrap up 2025 with a 16% annual gain.
This year’s rally has been largely a U.S. phenomenon, with the S&P 500 having risen around 24% compared with an 8% gain for MSCI’s broadest index of Asia-Pacific shares outside Japan, and just 5% for Europe’s STOXX 600. [.EU]
But the mood latterly has been more cautious on the back of higher U.S. Treasury yields. The yield on the 10-year note reached 4.64% late last week, its highest since May.
This marks something of a change as until late December, the U.S. benchmark yield had spent all of the second half of 2024 below 4.5%.
This upward pressure, said Lee Hardman, senior currency analyst at MUFG, “reflects investor unease over the potential inflationary impact from the incoming Trump administration’s policy agenda.”
Investors anticipate President-elect Trump’s policies around looser regulation, tax cuts, tariff hikes and tighter immigration to be both pro-growth and inflationary, which in theory would keep U.S. yields high.
“The Fed has already displayed more caution over cutting rates further next year in light of potential policy changes,” said Hardman.
But in a sign of end-of-year positioning, the 10-year yield dipped three basis points on Tuesday, after a seven-bp drop on Monday, to trade at 4.52%. [US/]
Similarly all three major U.S. indexes closed on Monday with sharp losses mainly due to end-of-year tax positioning, valuations worries and uncertainties about 2025. [.N]
CHINA
The only economic indicators of note from Tuesday came from China, where data showed manufacturing activity barely grew in December, although services and construction recovered, suggesting policy stimulus is trickling into some sectors, as the economy braces for new trade risks.
The National Bureau of Statistics purchasing managers’ index slowed to 50.1 in December from 50.3 a month prior, barely holding above the 50-mark denoting growth and missing a median forecast of 50.3 in a Reuters poll.
