Monday, December 23, 2024

Fed Jolts Asian Assets, Lifts US Equity Futures: Markets Wrap

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(Bloomberg) — Asian equities rose along with US stock-index futures on speculation the Federal Reserve’s decision to start cutting interest rates with a half-percentage-point move will help guide the US economy toward a so-called soft landing.

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Japan’s markets led gains in Asia, with an MSCI gauge of regional equities climbing by the most in a week. US stock futures also rallied after the S&P 500 Index closed 0.3% lower in the aftermath of the Fed’s announcement Wednesday.

The dollar rallied and Treasuries fell on bets the aggressive move to start the cutting cycle will mean the Fed will need to lower interest rates less in the long-run. Chair Jerome Powell himself cautioned against assuming big cuts would continue and signaled borrowing costs may need to remain higher than pre-pandemic norms.

The Fed’s move is reinforcing expectations that the US economy will avoid a downturn — a stance that’s likely to support equities and underpin the dollar in the coming days. An overwhelming majority in a survey of Bloomberg Terminal subscribers expects a soft landing for the world’s largest economy, with 75% forecasting that it will avoid a technical recession by the end of next year.

“The Fed’s jumbo rate cut shows a clear intention of the Fed to support the US economy and aim for a ‘soft landing,’” Nomura Holdings Inc. strategists including Chetan Seth wrote in a note. “So long as the US manages to avoid a recession in the months ahead, the Fed pre-emptively cutting rates should be generally supportive of stocks.

The Fed’s first cut in more than four years was accompanied by projections indicating an additional 50 basis points of cuts across the remaining two policy meetings this year. While Powell cautioned against assuming big rate cuts would continue, the reduction means regional central banks can also start to ease without worrying about exchange rate pressures.

Bank of Korea Governor Rhee Chang-yong said Thursday the Fed’s cuts reduced pressure on the foreign exchange market and allow the central bank to focus on domestic factors in setting policy.

An index of dollar strength steadied after a two-day gain, while the yen weakened to trade near 143 per greenback. Treasury 10-year yields rose, with their New Zealand and Australian counterparts echoing the move.

“The yen’s decline has been broadened by rising US long-term interest rates on the view that there is no rush to cut rates in the future, as well as by yen sales by domestic importers,” said Keiichi Iguchi, a senior strategist at Resona Holdings Inc.

Over in South Korea, shares of SK Hynix Inc. plunged, leading peers lower, after Morgan Stanley cut its rating on the memory chipmaker two notches on its fading pricing power.

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

Elsewhere, the Bank of England is likely to refrain for cutting rates for a second consecutive meeting.

Fed Cut Positive for Asian Stocks, Risk Currencies, Analysts Say

In the US, equities, especially those of economically sensitive companies, briefly surged Wednesday, driving the S&P 500 up as much as 1%. From stocks to Treasuries, corporate bonds to commodities, every major asset was down Wednesday. While the scale of the declines was minor, a concerted pullback like that hadn’t followed a Fed policy decision since June 2021.

Treasuries, which are set for a fifth straight month of gains in September, slipped after the Fed’s decision and Powell’s remarks. Officials’ updated quarterly forecasts showed the median projections were for the funds rate to fall by year’s end to 4.375% — representing a further half-point of total reductions this year. By the end of 2025 and 2026, the median forecasts are for 3.375% and 2.875%, respectively.

Gold nudged higher following a tumultuous session in which it touched a record high after the Fed rate cut. Oil declined as signs of weak US demand added to bearish headwinds, offsetting the Fed’s rate cut and escalating tensions in the Middle East.

Key events this week:

  • UK rate decision, Thursday

  • US Conf. Board leading index, initial jobless claims, existing home sales, Thursday

  • FedEx earnings, Thursday

  • Japan rate decision, Friday

  • Eurozone consumer confidence, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures rose 0.8% as of 11:40 a.m. Tokyo time

  • Nasdaq 100 futures rose 1.2%

  • Japan’s Topix rose 2.3%

  • Australia’s S&P/ASX 200 rose 0.3%

  • Hong Kong’s Hang Seng rose 1.1%

  • The Shanghai Composite rose 0.8%

  • Euro Stoxx 50 futures rose 1%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro fell 0.2% to $1.1098

  • The Japanese yen fell 0.7% to 143.32 per dollar

  • The offshore yuan was little changed at 7.1001 per dollar

Cryptocurrencies

  • Bitcoin rose 3.2% to $62,131.71

  • Ether rose 2.9% to $2,392.68

Bonds

Commodities

  • West Texas Intermediate crude fell 0.4% to $70.66 a barrel

  • Spot gold rose 0.2% to $2,564.44 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu and Masahiro Hidaka.

(An earlier version of this story was corrected to correct the attribution to a quote.)

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