(Bloomberg) — Share futures rallied alongside Asian equities on expectations the Federal Reserve’s half-percentage-point interest-rate cut will guide the world’s largest economy toward a so-called soft landing.
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European and US stock futures advanced, while Japan’s markets led gains in Asia. An MSCI gauge of regional equities climbed by the most in a week as most Asian benchmarks were in the green on Thursday, fueled by bets of a resilient US economy and lower borrowing costs.
Treasuries fell on bets the aggressive move to start the cutting cycle will mean the Fed will need to lower interest rates less in the long run. Chair Jerome Powell himself cautioned against assuming big cuts would continue and signaled borrowing costs may need to remain higher than pre-pandemic norms.
The Fed’s move is reinforcing expectations that the US economy will avoid a downturn, and cemented wagers that policymakers won’t be in a rush to deliver further easing — a stance that’s likely to underpin the dollar in the coming days. An overwhelming majority in a survey of Bloomberg Terminal subscribers expect a soft landing for the world’s largest economy, with 75% forecasting that it will avoid a technical recession by the end of next year.
“The Fed’s jumbo rate cut shows a clear intention of the Fed to support the US economy and aim for a ‘soft landing,’” Nomura Holdings Inc. strategists including Chetan Seth wrote in a note. “So long as the US manages to avoid a recession in the months ahead, the Fed pre-emptively cutting rates should be generally supportive of stocks.”
The Fed’s first reduction in more than four years was accompanied by projections indicating an additional 50 basis points of cuts across the remaining two policy meetings this year. Powell said launching the unwind of the central bank’s historic tightening campaign with a big move while the US economy is still strong would help limit the chances of a downturn.
Meanwhile, the Bank of England is likely to refrain from cutting rates for a second consecutive meeting on Thursday, maintaining a patient approach to reversing the most aggressive policy tightening in decades. Governor Andrew Bailey may provide investors more hints that the central bank will cut rates again in November.
An index of dollar strength slipped after a two-day gain, while the yen weakened to trade at around 143 per greenback. At a decision on Friday, Bank of Japan Governor Kazuo Ueda faces the delicate task of making sure investors are firmly aware of interest-rate hikes to come without ruffling markets even as he stands pat on policy.
“The yen’s decline has been broadened by rising US long-term interest rates on the view that there is no rush to cut rates in the future, as well as by yen sales by domestic importers,” said Keiichi Iguchi, a senior strategist at Resona Holdings Inc.
Elsewhere in Asia, Singapore stocks were on track for their highest close since 2007 as the prospect of lower interest rates lifted the city-state’s real estate investment trusts, and added to the appeal of the high-yielding market.
The Hong Kong Monetary Authority lowered its base interest rate for the first time in four years following the Fed’s cut, while New Zealand’s economy shrank in the second quarter. HSBC Holdings Plc reduced its key benchmark rate in Hong Kong for the first time since 2019, a move likely to hit margins while bringing relief to homeowners and borrowers in the Asian financial hub.
Fed Cut Positive for Asian Stocks, Risk Currencies, Analysts Say
Gold nudged higher following a tumultuous session in which it touched a record high after the Fed rate cut. Oil was steady as investors weighed signs of weak US demand against the Fed’s rate cut and escalating tensions in the Middle East.
Key events this week:
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UK rate decision, Thursday
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US Conf. Board leading index, initial jobless claims, existing home sales, Thursday
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FedEx earnings, Thursday
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Japan rate decision, Friday
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Eurozone consumer confidence, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures rose 1% as of 2:54 p.m. Tokyo time
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Nikkei 225 futures (OSE) rose 2.1%
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Japan’s Topix rose 2.2%
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Australia’s S&P/ASX 200 rose 0.6%
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Hong Kong’s Hang Seng rose 1.9%
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The Shanghai Composite rose 0.6%
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Euro Stoxx 50 futures rose 1%
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro was little changed at $1.1127
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The Japanese yen fell 0.3% to 142.72 per dollar
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The offshore yuan rose 0.4% to 7.0701 per dollar
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The Australian dollar rose 0.5% to $0.6797
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The British pound was little changed at $1.3218
Cryptocurrencies
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Bitcoin rose 2.9% to $61,995.33
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Ether rose 3.6% to $2,410.1
Bonds
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The yield on 10-year Treasuries advanced one basis point to 3.71%
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Japan’s 10-year yield advanced 2.5 basis points to 0.850%
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Australia’s 10-year yield advanced seven basis points to 3.93%
Commodities
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West Texas Intermediate crude was little changed
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Spot gold rose 0.5% to $2,572.70 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Winnie Hsu and Masahiro Hidaka.
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