(Bloomberg) — Asian stocks were set for muted moves following declines on Wall Street following the Federal Reserve’s half-point rate cut Wednesday.
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Stock futures for Japan rose while those for Australia fell, with moves limited to less than 1%. The S&P 500 initially jumped to a record high before retreating to end the session Wednesday 0.3% lower, while the Nasdaq 100 fell 0.5%. Hong Kong markets are set to resume trading after a holiday.
The Fed’s first cut in more than four years was accompanied by projections showing a narrow majority in favor of an additional 50 basis points of cuts at the remaining two policy meetings this year. Markets had priced in a more aggressive cut of 70 basis points. Fed Chairman Jerome Powell warned against assuming the interest rate cuts would continue.
“It’s really anyone’s guess,” said Chamath de Silva, head of fixed income at Betashares Holdings in Sydney, referring to market reactions in the region. “I don’t expect any major moves and wouldn’t be surprised if Asian stocks end the session little changed as we wait for more clues from the subsequent reaction in the US market this evening.”
An index of dollar strength early Thursday erased gains from the previous session, while the yen strengthened to trade around 142 per dollar. The ten-year government bond yield rose by six basis points to 3.7% on Wednesday.
In the US, stocks, especially those of economically sensitive companies, rose briefly on Wednesday, sending the S&P 500 up as much as 1%. From stocks to government bonds, from corporate bonds to commodities: all major assets fell on Wednesday. While the magnitude of the declines was small, such a concerted pullback had not followed a Fed policy decision since June 2021.
Gold retreated from a record high while oil fell as signs of weak demand outweighed rising tensions in the Middle East.
“After rallying ahead of today’s Fed announcement, it wouldn’t be unreasonable for the market to pull back a bit,” said Bret Kenwell of eToro. “However, the long-term prospects remain promising. As long as the economy holds up and inflation doesn’t revive, lower interest rates and strong earnings growth can keep stocks rising over the long term.”
In Asia, the dataset for publication includes unemployment for Australia and Hong Kong, trade figures for Malaysia and an interest rate decision in Taiwan.
When considering the market’s reaction to a half-point cut at the meeting, some expected the reaction to be positive due to the benefit to the economy, others expected a decline due to the ‘what do they know we don’t knowing’ logic. , said Nationwide’s Mark Hackett.
“The lack of directional movement was the least likely outcome, but it is the outcome we got,” Hackett said. “The S&P 500 is struggling to break July’s record high, and the more failed breakouts we see, the harder it will be to achieve it.”
Government bonds, which are set to post a fifth straight gain in September, fell after the Fed’s decision and Powell’s comments. Officials’ updated quarterly forecasts showed average interest rates would fall to 4.375% by the end of the year – representing another half a point of this year’s total cuts. By the end of 2025 and 2026, the average projections are 3.375% and 2.875%, respectively.
“It will now be a battle between market expectations and the Fed, with employment data – not inflation data – determining which side is right,” said Jack McIntyre of Brandywine Global. “Now everyone is dependent on data again.”
Main events this week:
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British interest rate decision, Thursday
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American Conf. Board leading index, initial unemployment claims, existing home sales, Thursday
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FedEx earnings, Thursday
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Japan interest rate decision, Friday
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Consumer confidence in the eurozone, Friday
Some of the major moves in the markets:
Stocks
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S&P 500 futures rose 0.4% as of 7:47 a.m. Tokyo time
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Hang Seng futures were unchanged
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S&P/ASX 200 futures fell 0.5%
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro was little changed at $1.1123
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The Japanese yen was little changed at 142.19 per dollar
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The offshore yuan was little changed at 7.0919 per dollar
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The Australian dollar rose 0.1% to $0.6772
Cryptocurrencies
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Bitcoin rose 0.6% to $60,582.19
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Ether rose 0.6% to $2,340.47
Bonds
Raw materials
This story was produced with the help of Bloomberg Automation.
–With help from Georgina McKay.
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