Asian stock markets saw gains following a rally on Wall Street, after the Federal Reserve indicated that it still sees the possibility of cutting interest rates later this year. The central bank believes that any inflation caused by tariffs will be temporary.
Australian and South Korean Shares Gain
Shares in Australia and South Korea rose alongside US futures, as the S&P 500 increased by 1.1% and the Nasdaq 100 climbed by 1.3%. However, shares in China saw a slight dip in early trading. This followed a decline in US-listed Chinese stocks on Wednesday, signaling that their outperformance against US equities may be coming to an end. Japanese markets were closed for a holiday, meaning no trading occurred in Asian cash Treasuries.
Australia’s Dollar Weakens After Job Data
The Australian dollar weakened after new job data revealed a drop in employment. Australia lost 52,800 jobs in the last month, compared to a forecasted increase of 30,000. Bloomberg’s index of the US dollar pulled back from its earlier gains. Treasury futures also rose in Asia, continuing the upward trend from Wednesday’s Fed decision.
Fed Holds Interest Rates and Signals Potential Rate Cuts
As expected, the Federal Reserve decided to keep interest rates unchanged. Chair Jerome Powell addressed the impact of President Donald Trump’s actions on the economy, stating that the inflationary effects of tariffs are likely to be “transitory.” This upbeat assessment helped drive the stock market rally, which marked the largest increase on any Fed decision day since July. The rally came after a tough four-week stretch during which the S&P 500 had entered correction territory.
“The market will see this as a dovish stance, with the Fed not overly concerned about inflation or the economy. Stocks and bonds are celebrating this,” said Christian Hoffmann of Thornburg Investment Management.
Fed’s Forecast Changes and Market Response
Despite the rally, there were some shifts in the Fed’s forecast that could be seen as negative for equities. These included a downward revision of growth expectations for 2025 and an increase in the forecast for inflation. However, Amanda Lynam, head of macro credit research at BlackRock Financial Management, noted that the recent correction in US stocks had already priced in a much worse economic outlook than when the Fed last met.
Market Data and Key Developments in Asia
In Asia, Chinese banks kept their one-year and five-year loan prime rates unchanged for the fifth consecutive month. On Thursday, inflation data from Hong Kong and a policy decision in Taiwan are expected to be released. The Bank of England is also anticipated to leave interest rates unchanged, while the Swiss National Bank is expected to cut rates by 25 basis points.
Tencent Holdings announced plans to boost its AI infrastructure spending, following the company’s fastest revenue growth since 2023. Meanwhile, in South Korea, Samsung Electronics pledged to strengthen its position in the high-bandwidth memory chip market in response to shareholder concerns.
Powell Calms Recession Fears
Chair Jerome Powell’s remarks on the likelihood of a recession reassured stock investors. He stated that the risk of a recession was “not high,” which calmed nerves in the markets. The Fed’s decision to lower its growth outlook further supported the bond market rally, aligning the Fed and traders on the expectation of rate cuts this year.
“Powell gave a reassuring performance, signaling that the Fed is in a strong position and can afford to wait. He made it clear that they are confident they can manage the situation,” said Bill Dudley, the former president of the New York Fed, on Bloomberg Television.
Fed’s Balance Sheet Plans
The Federal Reserve also announced that it would slow down the pace of balance sheet reduction starting next month. This means the central bank will allow fewer bonds to roll off its balance sheet each month.
Commodity Prices
Oil prices saw a slight increase, following a US government report that eased concerns about potential demand destruction. Gold also rose, reaching a new high on Wednesday, as the Fed projected slower growth and higher inflation.
This comprehensive market overview highlights how the Fed’s recent decisions and economic outlook have impacted stocks, currencies, and commodities globally, offering insight into the current financial climate.
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