Asian shares edge higher with US interest rate cut back in focus
Asian stock markets shifted higher on Tuesday as expectations grew that the Federal Reserve would cut interest rates in December, while investors flocked to global technology shares, shrugging off concerns that the sector was overheating.
MSCI’s index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.75% led mainly by technology shares, recouping some of its losses from last week when it fell 4%. The index is on track to post its first monthly decline since March.
European futures fell 0.2%, indicating a weak open.
The benchmark 10-year Treasury bond yield remained unchanged at 4.038%. The two-year yield (US2YT=RR), which rose in line with traders’ expectations of a higher Fed funds rate, was steady at 3.495% in Asian hours after dropping 2.5 basis points in the previous session.
Japan’s Nikkei rose just 0.1% on Tuesday after a strong start to the session after a holiday on Monday. The index fell 3.5% last week as risk-off sentiment gripped markets. Hong Kong’s Hang Seng Index rose nearly 0.6% on Tuesday and China’s CSI300 Index rose 1.1%.
The prospect of a US interest rate cut increased after Fed Governor Christopher Waller said available data showed that the US job market remains weak enough to warrant another quarter-point rate cut.
Markets priced the odds of a 25 basis point cut at the December meeting at 85.1%, according to the CME’s FedWatch Tool, up from 42.4% last week. The US central bank will meet on December 9 and 10.
The sudden shift in rate cut bets had limited impact on the dollar. The euro last bought $1.15125 after making small gains overnight.
The dollar index was last at 100.25, maintaining its gains from last week when the index rose nearly 1%.
“We think the Fed will cut in December and then pause for five to six months before they make three more cuts next year, probably in the second half,” said Jack Siu, head of Lombard Odier Discretionary Portfolio Management, Asia.
He said it was likely the ECB and Swiss National Bank had ended interest rate cuts, and “the BOJ would be more dovish, even though the next step would be to raise interest rates.”
“From the perspective of interest rate differentials, we will see the dollar depreciate. In our opinion, this rebound is not sustainable,” Siu said.
The ongoing dispute between Tokyo and Beijing over Japanese Prime Minister Sanae Takaichi’s comments in early November that a Chinese attack on Taiwan could trigger a Japanese military response remains in focus.
Takaichi and US President Donald Trump spoke on Tuesday, following his telephone conversation on Monday with Chinese President Xi Jinping. He said Trump explained US-China relations to him.
Trump said on Monday that he would travel to Beijing in April at the invitation of the Chinese government. The proposed meeting was interpreted as a further sign that diplomatic and political relations between the two countries are improving following the trade war ceasefire.
“This helps overall geopolitical tensions continue to add to market volatility,” said Marcella Chow, market strategist at JPMorgan Asset Management.
Nasdaq futures and S&P 500 futures also fell slightly in Asian trading hours.
The US stock and bond markets will be closed on Thursday for the Thanksgiving holiday and will trade for a half day on Friday.
On the commodities front, Brent crude futures fell 0.52% to $63.04 a barrel, while U.S. crude futures fell 0.48% to $58.56 a barrel.
The price of gold on the spot market was stable at $4,141 per ounce.
Source: Reuters
