Weakness in Chinese markets sent Asian stocks lower on Thursday, while yields on long-term U.S. bonds rose with the dollar as investors weighed monetary policy and the outlook for inflation in the world's largest economy.
Bitcoin stabilized above $90,000 after surpassing that level in the previous session, boosted by Donald Trump's return to the White House and the idea that his administration will be a boon for cryptocurrencies .
The world's largest cryptocurrency last traded at $90,151, up 1.7%, having already climbed more than 30% over a two-week period.
In the broader market, traders responded to U.S. inflation in line with expectations by increasing bets on a Federal Reserve rate cut next month, although the monetary policy outlook for 2025 and beyond was clouded by Trump's return to power.
Trump's plan, which calls for lower taxes and higher tariffs, is expected to fuel inflation and reduce the Fed's room to ease interest rates.
Edison Research also predicted Wednesday that the Republican Party will control both houses of Congress when the president-elect takes office in January, allowing him to pursue his agenda unimpeded.
That uncertainty was reflected in longer-term U.S. bond yields, which rose in Asia on Thursday.
The benchmark 10-year Treasury yield rose to 4.483%, according to LSEG data, its highest level since July 1.
The 30-year yield neared a five-month peak and was last trading 2.6 basis points higher at 4.6624%.
“Speculation about what Trump might do on the domestic policy and trade front is unlikely to feature in the Fed's December projections. This will change when the first policies are implemented,” Boris Kovacevic said , global macro strategist at Convera.
“The real effect of tariff increases and tax cuts will be most felt after 2025, because implementation and transmission to the real economy takes time. This will give the Fed some time to modify its reaction function accordingly.”
On the shorter end of the curve, the two-year yield, which generally reflects expectations for short-term rates, eased slightly to 4.3088%, according to LSEG data.
Markets now price the Fed's chance of a 25 basis point interest rate cut next month at 83%, up from 59% a day ago. However, expectations of Fed cuts next year following Trump's election victory last week have since been reduced.
The dollar meanwhile pulled yields on longer-term Treasuries higher on Thursday, ignoring growing bets of a Fed rate cut in December, which would normally be negative for the currency.
The greenback rose 0.24% against the yen to trade at 155.86, while pushing the euro to its lowest level in a year at $1.0551.
The Australian dollar rose 0.03% to $0.6487, following a slight decline earlier in the session on a downside surprise on jobs.
CHINA IN THE CORNER
MSCI's broadest index of Asia-Pacific shares outside Japan traded 0.3% lower, limiting its slight gains from earlier in the session.
This decline is explained by the fall in Chinese stocks which struggled to progress. The blue chip CSI300 index fell 0.16%, while the Shanghai Composite Index lost 0.24%.
Hong Kong's Hang Seng Index slipped 0.34%.
Investors were unimpressed with Beijing's latest support measures to prop up a struggling economy, after the country's finance ministry unveiled tax incentives on real estate and land deals on Wednesday.
China's real estate market has been struggling with a prolonged slowdown since 2021 and remains a major drag on the world's second-largest economy.
“If you're thinking of buying a house or you're in the market, this will definitely help. But it won't change the situation itself,” said Alvin Tan, head of Asia foreign exchange strategy at RBC Capital Markets.
“It's not going to get a lot of people to start (buying) homes. The inventory glut is still there.
In line with declines across Asia, Japan's Nikkei erased initial gains to trade 0.14% lower.
Elsewhere, oil prices fell on Thursday. Brent oil futures fell 0.18% to $72.15 a barrel, while West Texas Intermediate (WTI) oil futures fell 0.28% to $68.24 the barrel. [O/R]
Spot gold fell 0.42% to $2,562.25 an ounce. [GOL/]
