(Bloomberg) — Asian stocks braced for a tailwind from the Federal Reserve’s half-point rate cut and signs of further policy easing in the months ahead.
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Japanese stock futures rose, while U.S. benchmark contracts also gained, largely erasing Wednesday’s losses. The S&P 500 initially touched a record high before closing down 0.3%, while the Nasdaq fell 0.5%. Australian stock futures fell slightly, while Hong Kong markets resumed trading after a holiday.
The Fed’s first cut in more than four years was accompanied by projections indicating that a narrow majority favored an additional 50-basis-point cut at the two remaining policy meetings this year. Markets were pricing in a more aggressive 70-basis-point cut. Fed Chairman Jerome Powell warned against assuming that big rate cuts would continue.
The dollar strength index pared gains from the previous session on Thursday morning, while the yen weakened to trade around 142 per dollar. Yields on 10-year Treasury bonds advanced six basis points to 3.7% on Wednesday, with Australian and New Zealand bonds following suit in early trading.
“The rate cut was the first step in the Fed’s difficult task of managing a soft landing for the economy,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “Traders will continue to weigh how far the Fed will cut rates, which will put downward pressure on the dollar and yen going forward due to a decline in U.S. interest rates. That said, 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 as much as 1%. From stocks to Treasuries, corporate bonds and commodities, all major assets fell on Wednesday. While the scale of the declines was smaller, such a concerted pullback had not followed a Fed policy decision since June 2021.
Gold retreated from a record high while oil edged lower as signs of weak demand offset rising tensions in the Middle East.
“While the Fed typically avoids acknowledging policy mistakes, the initial larger-than-expected rate cut appears to reflect an effort to correct a slight lag in past decisions,” said Manish Bhargava, chief executive of Straits Investment Management. “By acting now, the Fed is taking a preemptive step to increase the likelihood of achieving a soft landing, balancing both mandates in an increasingly uncertain economic environment.”
In Asia, Hong Kong’s Monetary Authority cut its base interest rate for the first time since 2020 following the Federal Reserve’s cut, while New Zealand’s economy contracted in the second quarter. Data due in the region include unemployment in Australia and Hong Kong, trade figures from Malaysia and an interest rate decision in Taiwan.
The Bank of England, meanwhile, is likely to hold off on cutting rates for a second consecutive meeting.
Looking at the market reaction to a half-point cut ahead of the meeting, some expected a positive reaction due to the benefit to the economy, some expected a fall due to the logic of “what do they know that we don’t know,” according to Mark Hackett of Nationwide.
“A lack of directional movement was the least likely outcome, but that’s what we got,” Hackett said. “The S&P 500 is struggling to break above the July all-time high, and the more failed breakouts we see, the harder it will be to achieve them.”
Treasuries, which are on track for a fifth straight month of gains in September, fell after the Fed decision and Powell’s remarks. Officials’ updated quarterly forecasts showed the median projections were for the funds rate to fall by year-end to 4.375%, representing another half-point of total reductions this year. For the end of 2025 and 2026, the median forecasts are 3.375% and 2.875%, respectively.
“It will now be a battle between market expectations and the Fed, with employment data, not inflation, determining who is right,” said Jack McIntyre of Brandywine Global. “Now, everyone is back to being data-driven.”
Key events of this week:
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UK interest rate decision, Thursday
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U.S. Consumer Price Index, Initial Jobless Claims, Existing Home Sales, Thursday
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FedEx earnings, Thursday
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Japan to make rate decision on Friday
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Eurozone consumer confidence, Friday
Some of the main movements in the markets:
Stocks
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S&P 500 futures were up 0.3% as of 8:34 a.m. Tokyo time.
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Hang Seng futures remained unchanged
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S&P/ASX 200 futures fell 0.5%
Coins
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Bloomberg Dollar Spot Index little changed
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The euro remained virtually unchanged at $1.1111.
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The Japanese yen fell 0.3 percent to 142.71 per dollar.
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The offshore yuan was unchanged at 7.0956 per 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
Captivity
Raw materials
This story was produced with assistance from Bloomberg Automation.
–With assistance from Winnie Hsu and Yasutaka Tamura.
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