Asian stocks rise as traders shrug off hawkish Fed
In Asia, traders will be on alert for reaction to the European Union’s decision to impose additional tariffs on electric cars shipped from China starting next month. In other news, MSCI Inc. said it won’t add debt sold by the European Union to its range of government bond indexes.
Asian stocks tracked US peers higher as the Federal Reserve’s cautious outlook on interest rates did little to alter Wall Street’s bets on cuts.
Equity benchmarks rose in Australia and South Korea, while futures for Hong Kong stocks pointed to markets opening higher on Thursday. Japanese shares were mostly flat. Contracts on the S&P 500 edged higher in early Asian trading after the US benchmark topped 5,400 for the first time in its history, with Wednesday marking the 20-month anniversary of the bull market.
US stocks and bonds posted early gains on Wednesday after a report showed the core consumer price index cooled to the slowest pace in more than three years. Later, the Fed penciled in just one quarter point cut this year, down from three seen in March, while upping its outlook for 2025 to four cuts. Australian and New Zealand government bonds advanced Thursday, tracking the moves in Treasuries.
“The net impact of the two events, FOMC and CPI, would be positive for Asian central banks and are likely to lead to stronger Asian currencies against the dollar and higher stock prices,” said Tomo Kinoshita, a global markets strategist at Invesco Asset Management. “Meanwhile, lower US yields are expected to be a positive factor for Asian growth stocks.”
In Asia, traders will be on alert for reaction to the European Union’s decision to impose additional tariffs on electric cars shipped from China starting next month. In other news, MSCI Inc. said it won’t add debt sold by the European Union to its range of government bond indexes.
Elsewhere, the Bank of Japan starts its two-day policy meeting with a decision due on Friday. While authorities are expected to keep rates on hold, they are widely seen to consider reducing bond purchases.
Fed Rate Outlook
The change in the Fed rate outlook showed up most in Treasuries and the dollar. Treasury yields extended falls after the policy-sensitive two-year pared its yield drop by about half to eight basis points. A gauge of the greenback weakened slightly after falling 0.2% in its previous session. Swap contracts, however, still factored in rate reductions in November and December.
Individual Fed officials’ views on the best path forward for borrowing costs differed. The Fed’s “dot plot” showed four policymakers saw no cuts this year, while seven anticipated just one reduction and eight expected two cuts.
“These ‘dot plot’ projections likely don’t account for the latest May inflation data, which were softer than expected and reversed some of the heat we saw in the first quarter,” said Sonu Varghese at Carson Group. “We still think the odds are high for two rate cuts in 2024 if the disinflation process continues, as we expect.”
Powell said the officials welcomed the latest inflation figures, adding that he hopes for more reports like that. He said Wednesday’s figures had helped build their confidence on the trajectory of inflation but not enough to warrant rate cuts at this time.
“On net, while there was a modest surprise in this year’s median dot, we didn’t come away from this afternoon thinking much differently about the Fed,” said Michael Feroli at JPMorgan Chase & Co. “We continue to look for a first ease in November, and after this morning, perhaps see risks tilted a little more toward September than December.”
In commodities, oil edged lower after a three-day advance as investors weighed an unexpected build in American crude stockpiles and the higher-for-longer Fed rate outlook. Elsewhere, gold slipped.
Equity benchmarks rose in Australia and South Korea, while futures for Hong Kong stocks pointed to markets opening higher on Thursday. Japanese shares were mostly flat. Contracts on the S&P 500 edged higher in early Asian trading after the US benchmark topped 5,400 for the first time in its history, with Wednesday marking the 20-month anniversary of the bull market.
US stocks and bonds posted early gains on Wednesday after a report showed the core consumer price index cooled to the slowest pace in more than three years. Later, the Fed penciled in just one quarter point cut this year, down from three seen in March, while upping its outlook for 2025 to four cuts. Australian and New Zealand government bonds advanced Thursday, tracking the moves in Treasuries.
“The net impact of the two events, FOMC and CPI, would be positive for Asian central banks and are likely to lead to stronger Asian currencies against the dollar and higher stock prices,” said Tomo Kinoshita, a global markets strategist at Invesco Asset Management. “Meanwhile, lower US yields are expected to be a positive factor for Asian growth stocks.”
In Asia, traders will be on alert for reaction to the European Union’s decision to impose additional tariffs on electric cars shipped from China starting next month. In other news, MSCI Inc. said it won’t add debt sold by the European Union to its range of government bond indexes.
Elsewhere, the Bank of Japan starts its two-day policy meeting with a decision due on Friday. While authorities are expected to keep rates on hold, they are widely seen to consider reducing bond purchases.
Fed Rate Outlook
The change in the Fed rate outlook showed up most in Treasuries and the dollar. Treasury yields extended falls after the policy-sensitive two-year pared its yield drop by about half to eight basis points. A gauge of the greenback weakened slightly after falling 0.2% in its previous session. Swap contracts, however, still factored in rate reductions in November and December.
Individual Fed officials’ views on the best path forward for borrowing costs differed. The Fed’s “dot plot” showed four policymakers saw no cuts this year, while seven anticipated just one reduction and eight expected two cuts.
“These ‘dot plot’ projections likely don’t account for the latest May inflation data, which were softer than expected and reversed some of the heat we saw in the first quarter,” said Sonu Varghese at Carson Group. “We still think the odds are high for two rate cuts in 2024 if the disinflation process continues, as we expect.”
Powell said the officials welcomed the latest inflation figures, adding that he hopes for more reports like that. He said Wednesday’s figures had helped build their confidence on the trajectory of inflation but not enough to warrant rate cuts at this time.
“On net, while there was a modest surprise in this year’s median dot, we didn’t come away from this afternoon thinking much differently about the Fed,” said Michael Feroli at JPMorgan Chase & Co. “We continue to look for a first ease in November, and after this morning, perhaps see risks tilted a little more toward September than December.”
In commodities, oil edged lower after a three-day advance as investors weighed an unexpected build in American crude stockpiles and the higher-for-longer Fed rate outlook. Elsewhere, gold slipped.
(Edited by : SonalMohan Jadhav)
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
