Stock Market Today: Asian Stocks Gain After Wall Street Opens 2025 With Modest Losses

The two-year bond yield has pulled back to 4.35% from its Christmas highs near 4.50% in a move that looks to be taking the Pound lower.

"Sterling has started the year on the defensive," says Jeremy Stretch, an analyst at CIBC Capital Markets. "The UK’s growth outlook has shifted from among the best in the G10 in H1 2024, to among the weakest in H2 2024. GBP front-end rates have yet to reflect that change."

Falling yields signal investors are pricing in more interest rate cuts from the Bank of England in 2025 than was anticipated during the closing stages of 2024. Bond yield changes can significantly influence the performance of GBP and other currencies due to the relationship between bond yields, investor sentiment, and capital flows.

The current market cycle is particularly focused on bond yield differentials and central bank policy. The general rule of thumb is that falling bond yields should weigh on a currency's performance, explaining why the Pound starts the new year on a softer footing.

The Pound to Euro exchange rate is lower by a quarter of a per cent at 1.2066, and the Pound to Dollar rate is nearing its six-month lows at 1.2445 again.

Yet, UK bond yields still remain elevated relative to other countries as investors continue to see the Bank of England cutting interest rates at a slower pace than elsewhere in the coming months. It is for this reason that Sterling was the second-best performing G10 currency in 2024.

Most analysts we follow think the outperformance can continue in the coming year, which suggests that the soft start to the year should still be viewed as a pullback within a broader trend of outperformance.

However, a return to outperformance would require the UK economy to recover from a moribund second half of 2024. Risks on the horizon include a slowdown induced by the new government's hike in business taxes. From April, taxes on employer contributions to national insurance will rise, potentially raising unemployment and prompting the Bank of England to accelerate the pace of its interest rate cuts.

This would drag on yields and bring the Pound down alongside. "We could see BoE pricing shift more dovishly and drag GBP with it," says Stretch.

Economists have also warned that Chancellor Rachel Reeves might have to raise taxes at the spring spending review as a recent rise in the cost of financing UK debt means she is on course to miss her fiscal rules.

"The UK's debt dynamics are among the worst of the advanced economies, and higher market interest rates have already eaten some of the headroom against the fiscal rules. The Chancellor will come under pressure to implement further tax hikes," says Andrew Goodwin, Chief UK Economist at Oxford Economics.

GBP/USD is approaching six-month lows, underscoring the ominous strengthening of the U.S. Dollar as 2025 begins.

"The fundamental landscape for the U.S. currency remains the same. A hawkish Fed, scaling back its rate cut projections to signal only two quarter-point reductions by December, resulted in narrowing yield differentials between the US and other major economies, whose central banks began leaning towards a more dovish stance towards the end of 2024," says Charalampos Pissouros, Senior Market Analyst at XM.com.

The Federal Reserve cut interest rates in December but indicated it would likely only cut rates on two more occasions in 2025. This puts the Fed firmly in the slow lane regarding rate cuts, which can bolster the U.S. currency.

Some economists think there may be just one further cut from the Fed, which implies further USD strength ahead if correct.

January is also traditionally a period that favours the U.S. Dollar, meaning it could also benefit from seasonal tailwinds in the opening stages of the year.

Martin Miller, a Reuters market analyst, says the U.S. dollar looks set to rise further in January due to a combination of seasonal, fundamental and technical factors.

"FX traders should note that the dollar is usually in demand at the start of each year. An analysis of the January performance since 2000 of the USD index shows it has risen in 15 of the past 25 years," he says.

Rising U.S. Treasury yields have been a tailwind for the dollar, with the benchmark 10-year note hitting a more than seven-month high last week.

"The USD index, which tracks the dollar against a basket of six major currencies, has scope for an eventual probe of the major 108.962 Fibo, a 61.8% retrace of the 114.78 to 99.549 (2022 to 2023) drop. Fourteen-week momentum remains positive, reinforcing the overall bullish market structure," says Miller.

A move to such highs in the Dollar index would prompt the GBP/USD rate to seek fresh multi-month lows.

AUD/USD falls amid challenging market conditions

Australian dollar/United States dollar (AUD/USD) finished lower last week at 0.6217, a fall of 0.55% for the week. As we enter the closing stages of 2024, AUD/USD is trading nearly 9% below its starting point for 2024 (around 0.6810) and is poised for its weakest monthly close since the challenging days of the Covid-19 pandemic in 2020.

Offshore factors impacting AUD/USD

The downturn in AUD/USD can be largely attributed to offshore factors, including Donald Trump's election victory. This is expected to lead to US fiscal expansion characterised by increased spending and tax cuts. Consequently, this is likely to result in stronger US growth, higher inflation, and subsequently, higher interest rates, all contributing to a stronger USD.Furthermore, Trump's election victory is anticipated to result in tariffs on imports from countries including China, Mexico, Canada, and the European Union (EU). These tariffs will dampen growth expectations outside the US and weigh on commodity prices.

Currency depreciation and global tariffs

Some countries, such as China, have already allowed their currencies to depreciate to mitigate the impact of US tariffs, further weighing on AUD/USD. It is viewed as a more liquid proxy for the Chinese yuan (CNY). The relationship between AUD/USD and USD/CNY is not exact; however, if CNY falls by 2 - 3%, AUD tends to fall by approximately 3 - 5%.

Monetary policy and future outlook

The expected inflationary impact of US tariffs has led to a more cautious outlook regarding Federal Reserve (Fed) rate cuts. This was evident during the last Federal Open Market Committee (FOMC) meeting, where the Fed indicated it expects only two additional 25 basis point (bp) rate cuts in 2025, down from the four it had previously signalled. Expectations of fewer Fed rate cuts in 2025 have provided an additional boost to the US dollar.In Australia, the Reserve Bank of Australia’s (RBA) dovish shift in December and the larger budget deficits projected in the Australian Federal Government's Mid-Year Economic and Fiscal Outlook (MYEFO) report have weighed on the Aussie side of the AUD/USD equation.

What does the outlook for 2025 hold for AUD/USD?

The market's response to Trump's election victory was largely in line with expectations, with the US dollar gaining significantly, especially against the New Zealand dollar (NZD) and AUD. Both of these currencies are vulnerable to risks associated with China tariffs.The fate of AUD/USD in 2025 will largely depend on developments following Trump's inauguration on 20 January. Particular interest will focus on which of Trump's policies are implemented, their timelines, and how they compare to his pre-election promises.In the lead-up to the US election, Trump hinted at raising tariffs on Chinese imports to 60% or higher if re-elected. Currently, approximately 60% of imports from China are subject to tariffs averaging 17%. The market consensus is that Trump's tariffs on China may rise to around 40%. If the actual tariffs are lower than this, it should provide some relief for AUD/USD, however, any increase beyond 40% is likely to weigh heavily on AUD/USD.

1. European natural gas prices climb.

2. ECB's Stournaras says rates will reach about 2% around autumn.

3. South Korean authorities enter impeached President Yoon's compound in an arrest attempt.

4. Biden discussed plans to strike Iran's nuclear sites.

European gas gained on the first trading day of the year as the loss of a key supply route coincided with freezing temperatures across the north of the region and an unplanned disruption in Norway. Benchmark prices on Thursday rose to close at the highest since October 2023.

Russian gas deliveries across Ukraine halted on New Year's Day after a transit contract between the two warring nations expired, with no alternative in place. While traders had been expecting the loss of Russian flows — an important source of supply for several central European countries — a squeeze in supply this week may trigger quicker withdrawals from storage sites that act as a buffer. Inventories across the continent are already falling at the fastest pace since 2021 when the gas crisis was just starting to brew.

Benchmark gas for February delivery in the Netherlands climbed as much as 4.3%, and closed 2.8% higher at €50.27 a megawatt-hour at 6 p.m. in Amsterdam. Futures topped €50 on Dec. 31 in anticipation of the halt in flows.

The European Central Bank's (ECB) base interest rate should drop to around 2% by the fall of 2025, said Yannis Stournaras, ECB Governing Council member and Bank of Greece Governor, in an interview with Greece's Skai Radio on Thursday. However, he noted that this prediction could be affected by "unforeseen circumstances," highlighting risks in Europe and the U.S.

Economists and investors expect the ECB to cut rates at each meeting until mid-2025 as inflation stabilizes at the 2% target, while the region's economy continues to struggle.

Authorities entered impeached South Korean President Yoon Suk Yeol's compound on Friday to execute an unprecedented arrest warrant, evading a crowd of protesters outside, but were confronted by presidential security forces inside. This marks the first-ever arrest attempt of a sitting South Korean president, an unprecedented event.

Approximately 2,700 police officers were deployed near Yoon's residence as his supporters gathered to oppose the move. Investigators managed to reach the main gate of the residence but were stopped by a military unit from proceeding further. A physical altercation occurred between the arrest team and presidential guards, preventing them from entering the building housing Yoon.

It remains unclear whether the Presidential Security Service will attempt to block the arrest. The agency has previously prevented investigators with a search warrant from entering Yoon's office and residence. Reports indicate that authorities moved to execute the arrest warrant, approved on Tuesday, after Yoon refused to respond to a summons.

President Joe Biden and his team discussed plans to strike Iran's nuclear sites, according to U.S. news site Axios, citing three sources familiar with the matter.

National Security Advisor Jake Sullivan presented options to President Biden, suggesting that the U.S. might target Iran's nuclear sites if Iran takes steps toward developing nuclear weapons before January 20. This discussion occurred in a previously undisclosed meeting.

Biden has not made a final decision on the matter. The sources noted that the discussion was not triggered by new intelligence but aimed at exploring possible scenarios.

UTC+8 23:00: U.S. ISM Manufacturing PMI (Dec)

EUR/USD revisits the $1.0344-to-$1.0333 November and December lows whilst remaining below its early to mid-December lows and late December high at $1.0454-to-$1.0461.

Further minor resistance can be spotted at the mid-December $1.0534 high. Were a fall through the November low at $1.0333 to be seen, the 30 November 2022 low at $1.0223 would be next in line.

GBP/USD starts year by weighing on support

GBP/USD still hovers above its eight-month $1.2475 low with the early-to-mid-December lows and last week’s high at $1.2607-to-$1.2617 acting as technical resistance.A slide through $1.2475 would target the 9 May low at $1.2446 and the 16 April low at $1.2406 whereas a rise above $1.2617 would likely have the mid-December high at $1.2729 in its sights.​

Bitcoin continued a rebound on Jan. 2 as $95,000 returned ahead of the first Wall Street open of 2025.

Data from Cointelegraph Markets Pro and TradingView tracked BTC price gains of 1.5% on the day, taking BTC/USD to $95,880 on Bitstamp.

After revisiting monthly lows to start the week, Bitcoin BTC$96,107 showed strength as a long-expected deeper support retest failed to materialize.

“Christmas Range has swept both sides for liquidity now,” trader Daan Crypto Trades wrote in one of his most recent posts on X.

“Mid range at $95.8K has been acting as resistance on the most recent test.”

An accompanying chart showed increased volume at the range lows, something that came as various market metrics began to turn in bulls’ favor.

“I’d recommend keeping track of when this range breaks out to either side. Should give a good idea of where this moves over the next 1-2 weeks,” Daan Crypto Trades added.

Continuing, fellow trader Jelle reiterated the similarities between BTC price action this new year and last, drawing comparisons to a chart fractal that ultimately resolved to the upside.

“The similarities are there, with or without another sweep of the lows,” he said in his own X post.

“Comfy in spot, the next leg higher is right around the corner.”

Jelle subsequently predicted that a trip to between $130,000 and $150,000 would result from the breakout.

Other market participants held similar views, showing faith in the strength of the Bitcoin bull market despite the holiday lull.

Entrepreneur and investor Jason Williams was among them, calling for a similar new all-time high for BTC/USD this quarter.

“$BTC has re-entered the accumulation zone,” he told X followers on Dec. 30.

“In my view, a few weeks of consolidation could set the stage for a massive breakout. $131.5K+ by Q1 2025 feels inevitable. See you there.”

Williams’ chart took a longer-term view, likening the December range to that seen after old all-time highs hit in March last year. As Cointelegraph reported, the rangebound BTC price action that resulted ended up lasting more than seven months.

Equally bullish on the return of “TradFi” traders, meanwhile, Cole Kennelly, founder of crypto volatility index service Volmex, forecasts a broader bullish comeback for risk assets.

These suffered in the second half of December, in particular, on the back of a hawkish tone set by the US Federal Reserve after its latest interest rate cut.

“My gut tells me the market goes full risk on and a lot of money piles into crypto, now that end of year logistics / rebalancing / etc is over,” Kennelly wrote.

“Should be a big next two days.”

An air of caution lingered over markets on Thursday as Donald Trump's impending return to the White House - and his plans for hefty import tariffs, tax cuts and immigration restrictions - set the tone for the new year.

With just over two weeks until the U.S. President-elect's Jan. 20 inauguration, investors were bracing for unpredictability in Trump's economic agenda and what that would mean for the global economy.

That uncertainty left shares in Asia vulnerable to a selloff on Thursday, though those in Europe looked set to fare better with futures pointing to a positive open.

Chinese stocks in particular fell heavily, as did the yuan which weakened to its lowest level against the U.S. dollar in almost 14 months.

Trump's talk of tariffs in excess of 60% on imports of Chinese goods has coincided with central government pledges of proactive policies to promote growth this year, muddying the outlook for an economy that has struggled for momentum.

China and other Asian factory powerhouses ended 2024 on a soft note, data on Thursday showed, as expectations for the new year were tainted by growing trade risk from a second Trump presidency and persistently weak Chinese demand.

Also plaguing investors was concern that Trump's administration would run the U.S. economy red hot again, with policies market watchers expect will stoke inflation and add to government debt, limiting the scope for the Federal Reserve to ease interest rates.

Markets now price in about 42 basis points worth of Fed cuts this year , which is likely to keep the dollar strongly supported well into 2025.

In Europe, market focus will likely be on energy shares after Russian gas exports via Soviet-era pipelines running through Ukraine stopped on New Year's Day, ending decades of Russian dominance over European energy markets.

Still, the impact is likely to be muted given the long-scheduled stoppage will have limited influence on prices in the European Union - unlike in 2022, when falling Russian supplies sent prices to record highs, worsened a cost-of-living crisis and hit the bloc's competitiveness.

Key developments that could influence markets on Thursday:

- UK nationwide house prices (December)

- France, Germany HCOB manufacturing PMI (December)

- U.S. weekly jobless claims