Asian shares gain as Fed rate cut boosts sentiment: Markets are over

(Bloomberg) — Asian stocks rose along with U.S. stock futures after the Federal Reserve cut interest rates by half a percentage point and signaled further easing in the coming months.

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Japanese stocks rebounded in early trade, helped by renewed yen weakness against the dollar. U.S. stock futures advanced after the S&P 500 initially hit a record high before closing 0.3 percent lower. Australian shares also rose.

“Stock markets in Asia are benefiting from the immediate benefit of the rate cut,” Naomi Fink, global chief strategist for Nikko Asset Management, told Bloomberg Television. She warned of rising risks to markets as US stocks reflected strong earnings growth while the bond market expected economic weakness to warrant further Fed tapering. “You can’t have both.”

The Fed’s first rate cut in more than four years was accompanied by projections pointing to a further 50 basis point cut in the other two policy meetings this year. While Fed Chairman Jerome Powell warned against assuming further big rate cuts, the cut means regional central banks can also start to ease without worrying about pressures the exchange rate.

“The initial phase of the Fed’s normalization cycle was more assertive than expected as the central bank recalibrated policy to address labor market conditions,” said Manish Bhargava, chief executive at Straits Investment Management. “While inflation remains a key concern, the recent decline in employment metrics has prompted the Fed to adjust its strategy, emphasizing support for the near-term labor market.”

An index of dollar strength rose early Thursday, while the yen weakened to trade at around 143 per greenback. 10-year Treasury yields rose, with their counterparts in Australia and New Zealand following suit.

Fed cut positive for Asian stocks, currency risk, analysts say

In the US, stocks, particularly those of economically sensitive companies, rose briefly on Wednesday, leading the S&P 500 up 1%. From stocks to Treasuries, corporate bonds to commodities, every major asset fell on Wednesday. While the magnitude of the declines was minor, no such concerted pullback followed a June 2021 Fed policy decision.

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Gold was steady after a tumultuous session in which it hit a record high after the Fed cut interest rates. Oil slipped for the second session.

In Asia, the Hong Kong Monetary Authority cut its key interest rate for the first time since 2020 following Fed tapering, while New Zealand’s economy contracted in the second quarter. The data set for release in the region includes unemployment for Australia and Hong Kong, trade figures for Malaysia and an interest rate decision in Taiwan.

Elsewhere, the Bank of England is likely to hold off on cutting rates for the second meeting in a row.

Treasuries, which are set for a fifth straight month of gains in September, fell after the Fed decision and Powell’s remarks. Officials’ updated quarterly forecasts showed the median forecast was for the funds rate to fall by the end of the year to 4.375 percent – representing another half point of this year’s total cuts. By the end of 2025 and 2026, the median forecasts are 3.375% and 2.875%, respectively.

“It will now be a battle between market expectations and the Fed, with the employment data — not the inflation data — determining which side is right,” said Jack McIntyre of Brandywine Global. “Now, everyone is back to relying on data.”

Key events this week:

• UK rate decision on Thursday

• US Conf. Council leadership index, initial jobless claims, existing home sales, Thursday

• FedEx earnings on Thursday

• The decision on the rate of Japan, Friday

• Eurozone consumer confidence, Friday

Some of the main movements in the markets:

Stocks

• S&P 500 futures were up 0.5% as of 9:46 a.m. Tokyo time

• Japan’s Topix rose 2%

• Australia’s S&P/ASX 200 rose 0.2%

• Euro Stoxx 50 futures rose 0.7%

Coins

• Bloomberg Dollar Spot Index rose 0.1%

• The euro fell 0.2% to $1.1099

• The Japanese yen fell 0.7 percent to 143.29 per dollar

• The offshore yuan was down 0.1 percent at 7.1041 per dollar

Cryptocurrencies

• Bitcoin rose 3.3% to $62,244.63

• Ether rose 2.8% to $2,391.69

BONDS

• The 10-year Treasury yield rose two basis points to 3.72%

• Japan’s 10-year yield rose 2.5 basis points to 0.850%

• Australia’s 10-year yield rose five basis points to 3.92%

commodities

This story was produced with the help of Bloomberg Automation.

–With assistance from Winnie Hsu and Yasutaka Tamura.

(An earlier version of this story has been corrected to correct attribution of a quote)

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