MELBOURNE – Asia joined a global stock rally but the US dollar extended losses after the United States Federal Reserve indicated it will begin cutting interest rates next year.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 1.6 per cent.
The gains followed a rally on Wall Street that pushed the S&P 500 to the highest level in nearly two years. Apple shares touched a new high, helping push the Dow Jones Industrial Average to a record. US futures advanced in early Asian trading.
Mainland Chinese bluechips edged up by 0.65 per cent, while Hong Kong’s benchmark advanced 1.7 per cent and Australian shares jumped 1.6 per cent.
Singapore’s Straits Times Index was up 0.9 per cent as of 10.35am Singapore time.
However, Japan’s Nikkei slid 0.4 per cent, weighed down by the yen’s sharp rally.
The Fed left interest rates unchanged on Dec 13 and its chairman Jerome Powell said its historic tightening of monetary policy is likely over with inflation falling faster than expected.
A near-unanimous 17 of 19 Fed officials project that the policy rate will be lower by the end of 2024 than it is now – with the median projection showing the rate falling three-quarters of a percentage point from the current 5.25 per cent-5.5 per cent range.
US fed funds futures boosted the chances of rate cuts starting as soon as in March after the Fed decision, according to LSEG’s FedWatch. The market has priced in more than 150 basis points of easing next year.
“The Fed has delivered an early Christmas present to markets,” said Kellie Wood, deputy head of fixed income at Schroders in Sydney. “The next move is a cut and markets are now anticipating a faster and sharper easing cycle.”
“It was a very aggressive pivot,” said Ben Luk, global macro strategist at State Street Asia.
“The Fed has followed market expectation in terms of allowing for one more rate cut to be added into both the 2024 and the 2025 (outlooks),” he said.
That aggressive pivot will have a mixed impact in Asia, with tech shares to benefit more while markets including Japan will have a dampening effect as its currency strengthens with a weakening US dollar, he added.
US Treasuries extended gains in Asian trading, after rising sharply in the previous session, with 10-year yields falling below 4 per cent for the first time since August.
