SINGAPORE, Jan 2 (Reuters) – Asian stock markets started the new year on a weak note, continuing the cautious sentiment from the end of 2024. While the U.S. dollar held steady, investors remained uncertain as they awaited the return of Donald Trump to the White House. This political uncertainty, combined with a potentially more hawkish Federal Reserve, seemed to be driving market sentiment early in 2025.

Despite global shares closing 2024 with a robust annual gain of nearly 16%, December was a tough month, with stocks falling more than 2%. This was also true for the MSCI Asia-Pacific index, which dipped 1.2% in December but ended the year up more than 7%.

On Thursday, the MSCI index was down 0.58%, with trading volumes lighter due to a holiday in Japan. However, stock futures pointed toward a positive opening in Europe and the U.S. European futures, such as the EUROSTOXX 50, rose by 0.74%, while S&P 500 and Nasdaq futures showed gains of 0.48% and 0.67%, respectively.

“I think we are in a period of uncertainty between now and January 20,” commented IG market analyst Tony Sycamore, referring to Trump’s swearing-in for a second term.

The market's cautiousness is notable, as investors were expecting stronger gains in December, raising concerns about underlying risks. Sycamore pointed out that the prevailing consensus is that Trump’s economic policies may lead to a very aggressive expansion.

Chinese stocks faced a tough start, with the CSI300 index down 2.65% and the Shanghai Composite Index falling by 2.36%. In Hong Kong, the Hang Seng Index lost 2.15%. Investors are watching closely for China’s economic recovery plans, especially after government promises to boost growth. However, Trump’s potential tariffs on Chinese imports may create additional challenges.

“China is likely to rely heavily on policy support to avoid a significant slowdown, especially with the challenges posed by external factors like Trump’s return and the fragile domestic economy,” said Wang, an economist at AXA Investment Managers.

Elsewhere, South Korea’s KOSPI index remained flat, although it had been the worst-performing Asian market in 2024, down over 22% in dollar terms due to domestic political instability.

Dollar Holds Strong
Amid global uncertainty and the anticipation of fewer interest rate cuts by the Federal Reserve, the dollar stayed near its two-year high. The ongoing interest rate disparity between the U.S. and other economies had a significant impact on the foreign exchange markets, with many currencies seeing sharp declines against the dollar in 2024.

On Thursday, the dollar rose by 0.14% against the yen, pushing the Japanese currency toward its lowest point in over five months. The euro edged up slightly by 0.08% to $1.03615, but remained near its recent one-month low. Markets now expect only moderate rate cuts from the Fed, with predictions for two 25-basis-point cuts in 2025.

In the bond markets, U.S. Treasury trading was closed due to Japan's holiday, but futures remained steady. Bank of Singapore’s Eli Lee forecasted a 12-month yield of 5.00% for the 10-year U.S. Treasury.

Commodity Markets
In commodities, oil prices edged higher on Thursday. Brent crude rose by 0.25%, reaching $74.83 per barrel, while U.S. West Texas Intermediate crude gained 0.28% to $71.92. Spot gold increased by 0.34%, trading at $2,632.68 per ounce. Gold had a standout year in 2024, marking a 27% rise—the biggest annual gain since 2010.