Asian Stocks Climb as Traders Eye Fed Rate Cut: Markets Wrap

(Bloomberg) — Asian equities rose, joining a global rally as bets the Federal Reserve will soon start cutting interest rates fueled a rush into riskier corners of the market.

MSCI’s Asia Pacific Index – a gauge for benchmarks in the region – snapped a three-day decline, after US shares advanced to fresh highs, pushing global stocks to a new peak. The index trimmed some of it earlier gains, dragged down by Japanese stocks after US warned allies of stricter trade rules in China crackdown. Stocks in Hong Kong and mainland China fluctuated as traders awaited more details from the Third Plenum. 

Risk-on appetite appears to be back in Asia after increasing chances of a Donald Trump presidency raised concerns over geopolitical and trade risks over the past few sessions. Optimism that the Fed will cut rates soon, alongside signs of US retail resilience, supported sentiment. 

“Bolstered by optimism from the record-making journey, the bullish momentum in Japan and the Australian markets appears well-protected by rising expectations for more cuts and supportive data,” said Hebe Chen, an analyst at IG Markets Ltd. “However, also notable is the peace-breaking noise sparked by Trump’s comments on Taiwan, poised to cast a long-tail shadow on the region’s stability, putting the markets with the most direct impact — Taiwan, China, and South Korea — at looming risk.”

The risk-on sentiment drove a rotation into smaller US stocks — the Russell 2000 Index is up 12% in the last five sessions, its best showing since April 2020. 

Treasury yields were little changed Wednesday, after declines on Tuesday. The dollar was little changed. The yen fell early Wednesday, dropping a third day against the greenback.

“We have a complex matrix of drivers,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “Impending Fed easing ought to be good for rotation into smaller cap and tech, but equally, Trump 2.0 raises the uncertainty associated with geopolitics and trade.” 

New Zealand yields edged higher with the kiwi after mixed inflation data muddied the outlook for an interest rate cut. Singapore’s exports declined more than expected in June as electronics shipments remained weak, suggesting challenges ahead for the trade-reliant economy.

In Asia, economic data due include a monetary-policy decision in Indonesia. Markets are closed in India and Pakistan.

To Solita Marcelli at UBS Global Wealth Management, if the Fed can cut rates significantly in the context of a soft landing, there will be better prospects for a re-acceleration in earnings growth for lower quality and cyclical segments of the market. 

Some Wall Street economists are cautioning the Fed is waiting too long to reverse course after raising interest rates to a two-decade high. The International Monetary Fund, meanwhile, warned inflation in many major economies has been cooling slower than expected, flagging a potential risk to global growth from interest rates staying higher “for even longer.” 

The strength of the equity market has been underpinned by optimism the economy has withstood the worst of Fed tightening. In this regard, Tuesday’s better-than-estimated retail sales report was a “healthy” development, according to Bret Kenwell at eToro. It’s better to see the Fed cutting rates on falling inflation than to see the central bank rushing to bolster a weakened economy, he noted.

In commodities, gold hit another record after rallying almost 2% Tuesday to touch an all-time high of $2,469.66 per ounce, while West Texas Intermediate declined for a fourth day.

Key events this week:

• Eurozone CPI, Wednesday
• US housing starts, industrial production, Wednesday
• Fed Beige Book, Wednesday
• Fed’s Thomas Barkin speaks, Wednesday
• ECB rate decision, Thursday
• US initial jobless claims, Philadelphia Fed manufacturing, Conference Board LEI, Thursday
• Fed’s Mary Daly, Lorie Logan and Michelle Bowman speak, Thursday
• Fed’s John Williams, Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.1% as of 1 p.m. Tokyo time
• Japan’s Topix rose 0.4%
• Australia’s S&P/ASX 200 rose 0.9%
• Hong Kong’s Hang Seng was little changed
• The Shanghai Composite fell 0.3%
• Euro Stoxx 50 futures were little changed
• Nasdaq 100 futures fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0906
• The Japanese yen was little changed at 158.38 per dollar
• The offshore yuan was little changed at 7.2866 per dollar
• The Australian dollar was little changed at $0.6738

Cryptocurrencies

• Bitcoin rose 1.6% to $65,734.32
• Ether rose 1.2% to $3,482.1

Bonds

• The yield on 10-year Treasuries was little changed at 4.17%
• Japan’s 10-year yield declined one basis point to 1.010%
• Australia’s 10-year yield declined one basis point to 4.24%

Commodities

• West Texas Intermediate crude was little changed
• Spot gold rose 0.1% to $2,471.86 an ounce

This story was produced with the assistance of Bloomberg Automation.

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