Tokyo’s Nikkei led Asian markets higher on Thursday as the yen hit a two-week high after the U.S. Federal Reserve announced a limited interest rate cut and pledged a series of further cuts boosted sentiment.
After a much-anticipated meeting, the US central bank decided to cut borrowing costs for the first time since the start of the pandemic, opting for a half-point cut.
But the larger of the two options — some had expected a cut of 25 basis points — divided opinion, with some warning it could reignite inflation while others said it showed the bank was staying ahead of the curve in supporting economy in light of weak jobs data.
The bank’s dot plot guidance showed another 50 basis point cuts before January, followed by 100 next year and 50 in 2026.
Asian markets are volatile on uncertainty over the Fed’s interest rate plan
After the meeting, Fed chief Jerome Powell said the economy was in “good shape” pointing to lower inflation and steady growth.
“The labor market is in a strong position. We want to keep it there,” he told reporters.
However, he warned that the central bank would “proceed cautiously” and weigh the matter “meeting by meeting” as it appeared to continue to ease.
βIt is time to recalibrate our policy to something more appropriate given the progress in inflation and employment at a more sustainable level.
“This is the beginning of this process.”
Stocks have risen throughout the year on expectations that the tightening cycle, which began in 2022, would end this year as inflation slows and the labor market softens.
But after an initial surge higher after the announcement — pushing the S&P 500 to a new record — Wall Street retreated and ended up in the red.
The US Fed is set to make its first rate cut since 2020
Analysts pointed out that investors had largely factored in declines of 125 basis points this year, so a correction in valuations was expected.
Christian Hoffmann at Thornburg Investment Management said: βGiven the dissenting voice of a governor … the Fed must have faced concerns not only about doing too much versus too little, but also concerns about the signal to markets, and perhaps more subtly, political perspective and heritage.
“The setup for this meeting was not ideal. With the market almost evenly split between a 25 basis point cut and a 50 basis point cut, hopes were bound to be dashed. Additionally, U.S. stock indexes rose nearly every day last week and is flirting with all-time highs and high valuations.β
Asian markets shrugged off a weak U.S. lead and were mostly higher, with Tokyo rallying more than two percent as exporters were boosted by a weaker yen, which hit near 144 yen to the dollar, a level last seen at the beginning of the month.
Most Asian markets are up ahead of the Fed, but Tokyo was hit by a strong yen
That was a few days after breaking below 140 for the first time since last summer.
There were also healthy gains in Hong Kong, where the de facto central bank cut its own interest rates due to the city’s currency being pegged to the dollar, while Shanghai, Sydney, Singapore, Wellington, Taipei, Manila and Jakarta.
Investors are now turning their attention to the Bank of Japan’s policy meeting, which ends on Friday and is expected to see officials hold back, having rattled markets last month with a surprise — after doing so earlier this year for the first time since then 2007.
Gold was around $2,550, having surged to a new record high above $2,600 as the prospect of lower interest rates made the precious metal more attractive as an investment.
Keys around 02:30 GMT
Tokyo – Nikkei 225: UP 2.5 percent at 37,284.43 (break)
Hong Kong – Hang Seng Index: UP 0.6 percent to 17,757.70
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Shanghai – Composite: UP 0.3 percent to 2,725.31
Dollar/yen: UP to 143.61 yen from 142.29 yen on Wednesday
Pound/Dollar: DOWN to $1.3182 from $1.3207
EUR/USD: DOWN at $1.1092 from $1.1120
Euro/pound: DOWN to 84.14 pence from 84.17 pence
West Texas Intermediate: DOWN 0.8% to $70.37 a barrel
North Sea Brent crude: DOWN 0.5% to $73.26 a barrel
New York – Dow: DOWN 0.3 percent at 41,503.10 (close)
London – FTSE 100: Down 0.7% to 8,253.68 (close)
Source: AFP