(Bloomberg) — Asian stocks braced for tailwinds from a half-percentage-point interest-rate cut by the U.S. Federal Reserve and signs of more monetary policy easing in the coming months.
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Japanese stock futures rose, while U.S. index futures rose, largely erasing Wednesday’s losses. The S&P 500 initially hit a record high before closing down 0.3 percent, while the Nasdaq fell 0.5 percent. Australian stock futures were slightly lower while Hong Kong markets resumed trading after a holiday.
The Fed’s first rate cut in more than four years was accompanied by expectations that a slim majority favored an additional 50 basis points of cuts at its two remaining policy meetings this year. Markets had been expecting a more aggressive 70 basis points of cuts. Fed Chair Jerome Powell cautioned against assuming that aggressive rate cuts would continue.
The dollar index pared gains from the previous session early Thursday, while the yen weakened to trade around 142 yen per dollar. Ten-year Treasury yields rose six basis points to 3.7% on Wednesday, with Australian and New Zealand bonds tracking moves in early trade.
“The rate cut was the first step in the tough task the Fed has to do to manage a soft landing for the economy,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “Traders will continue to assess how deep the Fed will cut rates, which gives the dollar and yen downward pressure going forward due to lower U.S. interest rates. However, Japanese stocks are set to rise today after the yen weakened overnight.”
In the United States, stocks, especially those of economically sensitive companies, briefly rose on Wednesday, sending 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 modest, such a coordinated decline has not followed a policy decision by the Federal Reserve since June 2021.
Gold retreated from a record high while oil fell slightly as signs of weak demand outweighed rising tensions in the Middle East.
“While the Fed typically avoids admitting policy mistakes, the larger-than-expected initial rate cut appears to reflect an effort to correct a slight lag in previous decisions,” said Manish Bhargava, chief executive of Straits Investment Management. “By acting now, the Fed is taking a proactive step to increase the likelihood of a soft landing and balance its mandate in an increasingly uncertain economic environment.”
In Asia, the Hong Kong Monetary Authority cut its key interest rate for the first time since 2020 following a Fed cut, while New Zealand’s economy contracted in the second quarter. Data due in the region includes unemployment rates in Australia and Hong Kong, trade figures in Malaysia and an interest rate decision in Taiwan.
Elsewhere, the Bank of England is likely to refrain from cutting interest rates for a second consecutive meeting.
When considering the market’s reaction to a half-percentage-point rate cut ahead of the meeting, some expected a positive reaction because of the benefit to the economy, and others expected a decline because of the “what do they know that we don’t know” logic, according to Mark Hackett of Nationwide.
“The lack of directional movement was the least likely outcome, but that’s what we got,” Hackett said. “The S&P 500 is having a hard time breaking the record high it set in July, and the more failed breakouts we see, the harder it will be to achieve.”
Treasuries, which are set to post a fifth straight monthly gain in September, fell after the Fed decision and Powell’s comments. Officials’ updated quarterly forecasts showed the median expectation for the federal funds rate to end the year at 4.375% — an additional half-point of total cuts this year. By the end of 2025 and 2026, the median forecasts were 3.375% and 2.875%, respectively.
“The battle now will be 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 back to relying on data.”
Main events this week:
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UK interest rate decision, Thursday
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US Board of Governors Index, Initial Jobless 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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Eurozone Consumer Confidence, Friday
Some key movements in the markets:
Stocks
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S&P 500 futures were up 0.3% by 8:34 a.m. in Tokyo.
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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 Index was little changed.
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The euro was little changed at $1.1111.
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The Japanese yen fell 0.3% to 142.71 yen per dollar.
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The offshore yuan was little changed at 7.0956 against the dollar.
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The Australian dollar fell 0.1% to $0.6757.
Cryptocurrencies
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Bitcoin rose 1.7% to $61,246.78
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Ether rose 1.3% to $2,354.98
Bonds
Goods
This story was produced with the help of Bloomberg Automation.
—With assistance from Winnie Hsu and Yasutaka Tamura.
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