China stocks close flat, energy gains offset small-cap losses

SHANGHAI – China stocks closed roughly flat on Wednesday, as gains in energy shares offset losses in small-cap shares, while the Hong Kong market was closed for a public holiday.

** China’s blue-chip CSI300 Index closed up 0.05%, while the Shanghai Composite Index was down 0.01%.

** The CSI 2000 index, which tracks small-cap stocks, fell 2.3%, while energy shares added 1.3%.

** Chinese retail investors often favor small concept stocks, primarily for speculative purposes, attracted by potentially quick gains despite the risks involved.

** Some AI and e-commerce concept stocks fell sharply, with Hydsoft Technology down 10%, while bank stocks extended their rally.

** China’s central bank conducted a medium-term loan operation on Wednesday while keeping the interest rate unchanged.

** Efforts will continue in 2025 to stabilise China’s real estate market, China Construction News reported, citing a work conference held by the housing regulator.

** The CSI real estate shares were down 1.6%.

** Financial markets in Hong Kong will be closed through Thursday for the holiday.

** Looking ahead to 2025, AllianceBernstein maintains a cautiously optimistic outlook on China’s onshore stocks.

** “With policy stimulus guiding the way, the domestic economy is anticipated to emerge from its downturn and gradually stabilize, leading to a recovery in the earnings of listed companies,” said Huang Senwei, senior market strategist at AllianceBernstein.

** Sources with knowledge of the discussions told Reuters on Tuesday that Chinese authorities have agreed to issue 3 trillion yuan (USD 411 billion) worth of special treasury bonds next year to ramp up fiscal stimulus.

(USD 1 = 7.2988 Chinese yuan renminbi)

(Reporting by Shanghai Newsroom; Editing by William Mallard and Edmund Klamann)

Japan’s budget to hit record, but with reduced new bond issuance, draft shows

TOKYO – Japan’s government is set to compile a record USD 735 billion budget for the fiscal year from April due to larger social security and debt-servicing costs, adding to the industrial world’s heaviest debt, a draft seen by Reuters showed.

The 115.5 trillion yen draft budget is being compiled as the Bank of Japan shifts away from its decade-long stimulus program, putting more burden on the government to stimulate the economy.

In an attempt to improve public finances, however, the government plans to trim new bond issuance next fiscal year to 28.6 trillion yen from this fiscal year’s initially planned 35.4 trillion yen, helped by tax revenue growth, the draft showed.

It is the first time in 17 years that new bond issuance will drop below 30 trillion yen.

Decades of stop-start fiscal spending and reform have left Japan with the industrial world’s heaviest public debt burden – more than double the size of its annual economic output.

The BOJ’s retreat from a decade of radical stimulus adds to pressure on Japan’s fiscal health, as the government can no longer count on the central bank to effectively bankroll debt.

The BOJ ended negative interest rates in March and raised its short-term policy target to 0.25% in July. Governor Kazuo Ueda signalled on Wednesday that the next rate hike is nearing, saying wage and price developments indicate the economy will move closer to sustainably achieving the central bank’s 2% inflation target next year.

The draft budget, up from this fiscal year’s 112.6 trillion yen, is expected to be approved by Prime Minister Shigeru Ishiba’s cabinet on Friday for submission to parliament for deliberation early next year.

Tax revenue is projected to rise 8.8 trillion yen from this year’s initial estimate to a record 78.4 trillion yen, thanks in part to a recovery in corporate profits, according to the draft.

The primary budget balance, which excludes new bond sales and debt servicing costs, will be in deficit of less than 1 trillion yen, keeping alive the possibility of achieving the government’s goal of delivering a primary budget surplus by the next fiscal year.

The budget draft assumes the yield on the benchmark 10-year government bond rises to 2% next fiscal year from this year’s 1.9%, topping 2% for the first time in 13 years.

That would boost debt-servicing costs for interest payments and debt redemption to 28.2 trillion yen from 27 trillion yen for this fiscal year.

The government on Wednesday revised its economic outlook, estimating the real economic growth rate for the current fiscal year at 0.4%, down from 0.7% projected in November as a Chinese economic slowdown weighed on exports.

The growth projection for the next fiscal year was kept at 1.2%.

(USD 1 = 157.2200 yen)

(Reporting by Takaya Yamaguchi, Makiko Yamazaki, Yoshifumi Takemoto, and Kaori Kaneko; Editing by William Mallard and Raju Gopalakrishnan)

Japan’s Nikkei reverses course, ends higher as autos rise

TOKYO – Japan’s Nikkei share average reversed early losses to end higher on Wednesday, driven by gains in the auto sector although trade was dominated by retail investors, who bought back cheap stocks in muted trade with many global markets closed for the holidays.

The Nikkei rose 0.24% to close at 39,130.43 after falling as much as 0.28% earlier in the session.

The auto sector rose 2.9% and was the best performer among the Tokyo Stock Exchange’s 33 industry sub-indexes. Nissan Motor, the Nikkei’s top percentage gainer, surged 8.66%.

The broader Topix also erased losses to end 0.24% higher, at 2,733.86. Toyota Motor, which closed up 4.57%, was the biggest contributor to the Topix rise.

“There was seasonal selling of shares by retail investors, such as stocks in investment trusts. But once the equities fell to a certain level, they bought them back, betting the market will rise in the next session,” said Naoki Fujiwara, senior general manager at Shinkin Asset Management.

Technology investor SoftBank Group rose 1.27% and was the biggest source of support for the Nikkei. Uniqlo brand owner Fast Retailing rose 0.26%.

The market struggled to find direction with foreign investors away for the holiday season, said Fumio Matsumoto, chief strategist at Okasan Securities.

“This time of the year, local individuals were the only ones active in trading but they do not want to place active bets when foreign investors are away and large stocks do not move actively.”

Bank shares fell, with Mitsubishi UFJ Financial Group falling 0.44% and Sumitomo Mitsui Financial Group down 0.56%.

Of more than 1,600 stocks trading on the Tokyo Stock Exchange’s prime market, 52% rose, 44% fell and 3% traded flat.

(Reporting by Junko Fujita; Editing by William Mallard and Edmund Klamann)

Japan’s Nikkei slumps to weekly loss despite softer yen

TOKYO – Japan’s Nikkei share average fell on Friday and logged its worst week in more than a month despite the tailwind from a weaker yen, as the decline on Wall Street and caution after major central bank policy decisions weighed.

The Nikkei closed 0.29% lower at 38,701.90, bringing it to a weekly decline of 1.66%, its steepest decline since early-November.

The broader Topix lost 0.44%, and fell 1.19% for the week, the index’s sharpest weekly drop since mid-October.

Stocks drew little support from the Bank of Japan’s (BOJ) decision to not hike interest rates on Thursday or from Governor Kazuo Ueda’s news conference where he said considerable time was required to judge the outlook for domestic wages and overseas economies, chiefly the US

This came after the US Federal Reserve signaled a more cautious pace of rate cuts in 2025, after trimming rates by a quarter point on Wednesday.

That sent the US S&P 500 diving almost 3%, its biggest single-day decline since early August.

An invigorated dollar and an out-of-favour yen saw the pair touch 157.93 on the day for the first time since mid-July on Friday.

Japan’s Finance Minister Katsunobu Kato and top currency diplomat Atsushi Mimura called the yen’s sharp slide “alarming”, and said officials are ready to take “appropriate action”.

“With the weekend approaching, investors have a high sense of caution about what is next for the yen,” said Maki Sawada, an equities strategist at Nomura Securities.

Concerns about the potential for currency volatility may have stifled a potential relief rally following a week of huge, market-moving events, she said.

Carmakers, at least, were supported by the weaker yen, which boosts the value of overseas sales. Toyota gained 1.74%.

Real estate was the best performer among the Tokyo Stock Exchange’s 33 industry groups, climbing 2.39% as Japanese government bond yields sank to one-month lows.

Banks, which tend to move in tandem with bond yields, were the worst sectoral performers, shedding 2.67%.

Kadokawa fell by its daily limit of 16% after the media powerhouse behind the “Elden Ring” game announced a capital tie-up with Sony, instead of a widely anticipated acquisition. Sony added 0.74%.

(Reporting by Kevin Buckland; Editing by Sumana Nandy and Varun H K)

Global equity funds faced huge outflows ahead of Fed decision

Investors liquidated equity funds at the fastest rate in 15 years in the week to Dec. 18, driven by caution and profit-taking in anticipation of a hawkish outcome from the US Federal Reserve’s policy meeting after a recent market rally.

According to LSEG Lipper data, investors divested a net USD 37.22 billion worth of global equity funds in the week, the largest amount for a single week since September 2009.

The Fed cut rates as expected on Wednesday and signaled fewer rate cuts and projected higher inflation for next year, prompting a sell-off in global equities after Chair Jerome Powell emphasized the need for caution.

The MSCI World index has declined more than 3% this week and is set for its sharpest weekly fall in three and a half months.

Investors offloaded a robust USD 50.2 billion worth of US equity funds, logging the biggest weekly net sales since September 2009. European and Asian funds, however, experienced USD 9.21 billion and USD 1.74 billion worth of net purchases.

Meanwhile, global sectoral funds experienced their largest weekly outflow in 14 weeks, totaling USD 2.65 billion, with the tech and healthcare sectors facing net disposals of USD 1.37 billion and USD 737 million respectively.

Global bond funds continued to attract investor interest for a 52nd consecutive week, securing about USD 2.36 billion in net purchases, albeit the lowest amount in eight months.

Corporate and loan participation funds drew substantial inflows of USD 2.01 billion and USD 1.12 billion, respectively. Meanwhile, government bond funds experienced USD 594 million in outflows, marking a third consecutive week of net sales.

Money market funds recorded about USD 51.02 billion in net sales, marking the fourth outflow in five weeks.

In the commodities sector, gold and precious metal funds saw USD 1.67 billion withdrawn, the largest since July 2022, while energy funds experienced USD 215 million in outflows.

According to data covering 29,603 funds, emerging market equities faced increased selling pressure, with equity funds recording their sharpest net outflow in about a year at USD 5.27 billion, and bond funds also seeing USD 710 million in net outflows.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Hugh Lawson)

Investors hope for ‘Santa Claus’ rally as stocks lose steam

NEW YORK – With December so far delivering Scrooge-like returns in an otherwise stellar year for US stocks, investors hope the tail end of 2024 offers some holiday cheer, but warn of potential headwinds.

The benchmark S&P 500 is up more than 23% for 2024, even after a major stumble this week, and Wall Street has historically often enjoyed a strong annual close.

Since 1969, the last five trading days of the year combined with the first two of the following year have yielded an average S&P 500 gain of 1.3%, a period known as the “Santa Claus Rally,” according to the Stock Trader’s Almanac.

But this year, there are signs Santa Claus may disappoint.

The S&P 500 on Wednesday suffered its biggest one-day drop since August after the Federal Reserve caught investors off guard by signaling fewer-than-expected interest rate cuts in 2025.

The market also looks less healthy beneath the surface: Eight of the 11 S&P 500 sectors are in negative territory for December, while the equal-weight S&P 500, a proxy for the average index stock, is down 7%.

Congress also dealt the markets a year-end curveball on Thursday evening, rejecting a package that would have averted a partial government shutdown that could affect a range of services.

“I think investors are somewhat concerned about the potential for a government shutdown, particularly if one were to linger through the weekend,” said Anthony Saglimbene, Chief Market Strategist at Ameriprise Financial.

Another worry for stocks as the year winds down is rising Treasury yields, said Matt Maley, chief market strategist at asset manager Miller Tabak. Benchmark 10-year yields hit 4.55% on Thursday following the Fed meeting, their highest level in over six months.

With the S&P 500 trading at 21.6 times forward earnings estimates, well above its 15.8 historical average, according to LSEG Datastream, that jump in yields will put more pressure on equity valuations.

“We’re ending the year with people finally facing the reality that the stock market is extremely expensive and the Fed is not going to be as accommodative as they had been thinking,” Maley said.

Still, this week’s pullback could be positive because it eliminated some of the frothy sentiment in equities, “setting up the market for a rebound,” said Chuck Carlson, chief executive officer at Horizon Investment Services. “If there is further follow through on the downside, that could be a little bit more dangerous to the bullish trend.”

The Santa Claus period, when combined with the following first five trading days of January and the performance of January overall, is a harbinger for the year: when those three indicators are positive, the year has ended higher more than 90% of the time in the past 50 years, according to the Almanac.

But that seasonal strength may have come early this year, given the S&P 500 posted a blockbuster 5.7% return in November driven by Donald Trump’s Nov. 5 presidential election victory, Carlson said.

“It’s been a strong year for the market, and you can make an argument that we kind of got the year-end rally in November instead of December,” Carlson said.

Signs that the market rally is increasingly narrow could also spoil any holiday cheer.

A number of megacap stocks have performed well in December, including Tesla and Alphabet, which are up 26% and more than 12% respectively so far this month. Broadcom shares are up 35% for December after the company this month predicted booming demand for its custom artificial intelligence chips, pushing its market value over USD 1 trillion.

But such gains are increasingly sparse. The number of S&P 500 components that declined outpaced those that advanced for 13 straight sessions as of Wednesday, the longest such losing streak in LSEG data that stretches back to 2012.

In another worrisome sign, the percentage of S&P 500 stocks trading above their 200-day moving averages declined to 56% as of Wednesday, a low for the year, according to Adam Turnquist, chief technical strategist for LPL Financial.

“We recommend waiting for support to be established and for momentum to improve before stepping up to buy the dip,” Turnquist said in a note following Wednesday’s selloff.

(Reporting by Lewis Krauskopf; Additional reporting by Terence Gabriel, Laura Matthews, and Saqib Ahmed. Editing by Michelle Price and Jamie Freed, Kirsten Donovan)

Gold climbs after soft US inflation data; still set for weekly loss

Gold prices extended gains on Friday, supported by a softer dollar and Treasury yields after US economic data indicated a slowdown in inflation, although the Federal Reserve’s hawkish interest rate outlook kept bullion on track for a weekly loss.

Spot gold was up 1.2% at USD 2,624.15 per ounce, as of 01:41 p.m. ET (1841 GMT) and US gold futures settled 1.4% up at USD 2,645.10.

The dollar fell 0.6% from its two-year high, making gold less expensive for overseas buyers, while Treasury yields US10YT=RR edged down from an over six-month high.

The report showed that monthly inflation slowed in November after showing little improvement in recent months. The personal consumption expenditures (PCE) price index rose 0.1% last month after an unrevised 0.2% gain in October.

“Not only the PCE data, the personal income data, and the personal spending data all came out weaker than expected. We’re seeing people come back into the gold market here and re-establish positions,” Phillip Streible, chief market strategist at Blue Line Futures, said.

“Now all of a sudden going from two interest rate cuts which were priced in, that caused the dramatic selloff in gold, now comes back the possibility of three interest rate cuts in a more accommodative policy, but it’s still way too soon to tell.”

Bullion is down 0.9% this week so far after the Fed’s “dot plot” on Wednesday showed only two 25-bps rate cuts by 2025, signalling less easing than projected in September.

Higher interest rates increase the opportunity cost of holding gold, which does not yield any interest.

“With physical demand holding a floor for now, this means we are now heading into a 2025 that has relatively low Fed cut expectations, something that could fuel gold gains if inflationary fears end up being overblown, allowing the Fed more maneuverability,” J.P. Morgan said in a note.

Spot silver rose 1.8% to USD 29.54 per ounce, platinum gained 0.5% to USD 928.34 and palladium climbed 1.5% to USD 919.56.

(Reporting by Sherin Elizabeth Varghese in Bengaluru; Editing by Mohammed Safi Shamsi, Alan Barona, and Vijay Kishore)

CORRECTED-UPDATE 8-Oil steady as markets weigh Fed rate cut expectations, Chinese demand

Corrects story from Dec 20 to remove reference to China’s crude imports peaking as soon as 2025 in paragraph 9

Benchmark prices ease 2.5% for the week

Dollar on track for third consecutive week of gains

Fed policymakers prepare ground for rate-cut pause in 2025

Sinopec says China’s crude imports may peak next year

Trump warns EU on tariffs if bloc doesn’t buy more US oil, gas

By Arathy Somasekhar

HOUSTON, Dec 20 (Reuters) – Oil prices settled little changed on Friday as markets weighed Chinese demand and interest rate-cut expectations after data showed cooling U.S. inflation.

Brent crude futures LCOc1 closed up 6 cents, or 0.08%, at $72.94 a barrel. U.S. West Texas Intermediate crude futures CLc1 rose 8 cents, or 0.12%, at $69.46 per barrel.

Both benchmarks ended the week down about 2.5%.

The U.S. dollar retreated from a two-year high, but was heading for a third consecutive week of gains, after data showed cooling U.S. inflation two days after the Federal Reserve cut interest rates but trimmed its outlook for rate cuts next year.

A weaker dollar makes oil cheaper for holders of other currencies, while rate cuts could boost oil demand.

Inflation slowed in November, pushing Wall Street’s main indexes higher in volatile trading.

“The fears over the Fed abandoning support for the market with its interest rate schemes have gone out the window,” said John Kilduff, partner at Again Capital in New York.

“There were concerns around the market about the demand outlook, especially as it relates to China, and then if we were going to lose the monetary support from the Fed, it was sort of a one-two punch,” Kilduff added.

Chinese state-owned refiner Sinopec said in its annual energy outlook on Thursday that China’s oil consumption would peak by 2027, as demand for diesel and gasoline weakens.

OPEC+ needed supply discipline to perk up prices and soothe jittery market nerves over continuous revisions of its demand outlook, said Emril Jamil, senior research specialist at LSEG.

OPEC+, the Organization of the Petroleum Exporting Countries and allied producers, recently cut its growth forecast for 2024 global oil demand for a fifth straight month.

JPMorgan sees the oil market moving from balance in 2024 to a surplus of 1.2 million barrels per day in 2025, as the bank forecasts non-OPEC+ supply increasing by 1.8 million barrels per day in 2025 and OPEC output remaining at current levels.

U.S. President-elect Donald Trump said the European Union may face tariffs if the bloc does not cut its growing deficit with the U.S. by making large oil and gas trades with the world’s largest economy.

In a move that could pare supply, G7 countries are considering ways to tighten the price cap on Russian oil, such as with an outright ban or by lowering the price threshold, Bloomberg reported on Thursday.

Russia has circumvented the $60 per barrel cap imposed in 2022 following the invasion of Ukraine through the use of its “shadow fleet” of ships, which the EU and Britain have targeted with further sanctions in recent days.

Money managers raised their net long U.S. crude futures and options positions in the week to Dec. 17, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

(Reporting by Paul Carsten in London, Colleen Howe in Beijing and Jeslyn Lerh in Singapore; Editing by Muralikumar Anantharaman, Kirsten Donovan, Jane Merriman, Paul Simao, Diane Craft, Leslie Adler and David Gregorio)

((Arathy.s@tr.com))

Fed’s shift should keep dollar in the ascendancy

After arguably the most hawkish Fed meeting in well over a year, dollar longs will be emboldened by the central bank’s shift towards a new phase that implies rates will need to be higher for longer.

The 2025 median dot now shows 50bps of easing, down from 100bps in the September projections. And with inflation appearing to bottom out above target, as well as the threat of tariff-induced price rises from the incoming Trump administration, it is plausible that the Fed is on a prolonged pause throughout the whole of next year – currently an 18% chance according to CME FedWatch.

While a hawkish Fed cut was largely expected given the rhetoric from officials in the lead up to the decision, this meeting showed the first real signs that officials are growing concerned over a rebound in inflation.

Four of the 2024 dots were above the current rate at 4.625%. Fed’s Hammack dissented by voting to leave rates unchanged, while Chair Powell emphasized that the decision to cut was a close one. At the very least, this sets a high bar to a cut in Q1 2025. This will also heighten the event risk attached to incoming inflation reports.

For now, the dollar should remain in the ascendancy leading into Trump’s inauguration on Jan. 20, where the focus will be on whether his administration delivers tariffs on Day 1. Such an outcome can propel the dollar even higher, although, should Trump take a more gradual approach to tariffs, this would likely weigh on the greenback.

(Justin McQueen is a Reuters market analyst. The views expressed are his own.)

Stocks end flat after Fed-induced selloff as early bounce fades

NEW YORK – USD stocks ended little changed on Thursday, giving up an initial rebound from a sharp drop in the prior session after the Federal Reserve forecast fewer-than-expected interest rate cuts and higher inflation next year.

Economic data was in sync with the Fed’s view, with weekly initial jobless claims falling more than expected while gross domestic product for the third quarter was revised to show a 3.1% increase from the previously reported 2.8% pace.

“It clearly sent a message that rates weren’t going to keep going down if inflation didn’t continue its decline, and we’ve seen inflation tick up a bit here, and that’s a concern to the Fed,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

“The market is skittish, because we’ve had such a big move.”

The Dow Jones Industrial Average rose 15.37 points, or 0.04%, to 42,342.24, the S&P 500 lost 5.08 points, or 0.09%, to 5,867.08 and the Nasdaq Composite lost 19.92 points, or 0.10%, to 19,372.77.

The Dow barely managed to snap a ten-session losing skid, its longest streak since 1974.

The Dow and S&P 500 suffered their biggest one-day percentage drop since early August, while the Nasdaq suffered its biggest daily fall since July after the Fed on Wednesday said it expects to make just two 25 basis point cuts in 2025, half a percentage point less than its September forecast for the first year of the new Trump administration.

Even with the recent declines, the S&P 500 is up 23% on the year, with the Dow up more than 12% and the Nasdaq up 29%.

Traders now see just one quarter-point rate reduction by mid-2025, and see less than two cuts in total by the end of the year, compared with last week’s expectations of three rate cuts.

Longer-dated Treasury yields were higher after the economic data, with the benchmark 10-year note reaching a near 7-month high of 4.594%.

The CBOE volatility index, Wall Street’s fear gauge, eased to close at 24.09 after closing at a 5-1/2-month high of 27.62 a day earlier.

Bank stocks advanced 0.3% as a rise in yields tends to improve the profitability of lenders, while the incoming Trump administration is expected to loosen regulations on the sector.

Micron slumped 16.2% following its forecast of quarterly revenue and profit below estimates, pulling the PHLX Semiconductor index down 1.6%.

Homebuilder Lennar shares retreated 5.2% after reporting fourth-quarter results below estimates, weighing on the PHLX housing index, which dropped 2.6%.

Declining issues outnumbered advancers by a 2.18-to-1 ratio on the NYSE and by a 1.3-to-1 ratio on the Nasdaq.

The S&P 500 posted two new 52-week highs and 40 new lows, while the Nasdaq Composite recorded 29 new highs and 276 new lows.

Volume on USD exchanges was 16.33 billion shares, compared with the 14.52 billion average for the full session over the last 20 trading days.

(Reporting by Chuck Mikolajczak, additional reporting by Medha Singh and Purvi Agarwal in Bengaluru; Editing by Aurora Ellis)

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