Asian Equities Bounce Back as Fed Rate Cut Hopes Takes Center Stage
Asian equities experienced a cautious rebound on Wednesday, bolstered by dovish remarks from Federal Reserve Chair Jerome Powell and positive bank earnings. However, ongoing US-China trade tensions continued to restrain risk appetite. Powell indicated the possibility of additional rate cuts on Tuesday and noted that the conclusion of the central bank’s prolonged endeavor to reduce the size of its holdings might be approaching. His comments, perceived by some as dovish, provided a slight boost to the markets and strengthened expectations for further easing this year, with approximately 48 basis points of cuts anticipated by December. “The Fed may soon be looking to conclude (quantitative tightening) with an announcement at its upcoming October FOMC meeting possible,” stated Tom Kenny. “We anticipate the Fed will implement a 25 basis point cut during both the October and December FOMC meetings.”
Robust earnings reports from major US banks, along with an upward adjustment of the International Monetary Fund’s 2025 global growth forecast, provided support to the market, which had previously experienced a sharp decline due to renewed indications of tension in US-China trade relations. MSCI’s broadest index of Asia-Pacific shares outside Japan was last up 0.45 percent, while the Nikkei rose 0.8 percent after sliding 2.6 percent in the previous session. Nasdaq futures and S&P 500 futures saw a slight increase of approximately 0.1 percent each. Sentiment continued to be fragile, as US President Donald Trump remarked on Tuesday that Washington was contemplating the termination of certain trade ties with China, particularly concerning cooking oil. The US and China have initiated the imposition of extra port fees on ocean shipping companies that transport a wide range of goods, from holiday toys to crude oil.
Markets have experienced significant volatility in recent sessions due to a sharp escalation in the US-China trade war, following Trump’s announcement of an additional 100 per cent duties on Chinese goods. This move comes in response to Beijing’s dramatically expanded export controls on rare earths. “It does suggest that a lasting truce is not going to be easy to achieve. But it’s also a reminder as well, that the market does need to be mindful that… they shoot these arrows and then they sort of walk them back,” said Tony Sycamore. US Trade Representative Jamieson Greer stated on Tuesday that the implementation of additional 100 per cent tariffs on China’s exports to the United States would depend on China, while also recognizing the difficulty Beijing might face in finding an off-ramp. In France, Prime Minister Sebastien Lecornu announced on Tuesday the decision to suspend a landmark pension reform until after the 2027 election, a development that offered some relief to investors. European futures experienced a significant increase in Asia, with EUROSTOXX 50 futures rising by 0.8 percent. FTSE futures and DAX futures experienced an increase of approximately 0.3 percent each.
“I think anything that will bring some relief to the back-and-forth within the French parliament is an absolute win,” said Juan Perez. The euro was last seen slightly elevated at $1.1611, remaining largely shielded from the persistent political unrest in France. In the broader currency market, the dollar faced pressure from the Fed cut bets, declining 0.25 percent against the yen to 151.42 and 0.06 percent against the Swiss franc to 0.8009. The safe-haven yen and the Swiss franc garnered support amid the prevailing fragile risk sentiment. In other developments, spot gold continued its unprecedented ascent, rising by 0.9 percent to reach $4,179.80 an ounce, bolstered by geopolitical and economic uncertainties alongside expectations of a US rate cut. Oil prices experienced a slight decline, as Brent crude futures fell by 0.1 percent to $62.33 a barrel, while US crude decreased by 0.07 percent to $58.66 per barrel.
