Asian equities hit record highs, dollar dips before Fed rate reduction
Asian stocks rose on Tuesday as the dollar weakened, with investors anticipating that the US Federal Reserve would restart its easing cycle this week and possibly signal further rate cuts ahead. Markets showed minimal response to the US Senate’s narrow confirmation of Stephen Miran to the Fed’s Board of Governors, while a US appeals court also declined to permit President Donald Trump to dismiss Fed Governor Lisa Cook. Both moves were viewed as unlikely to influence the Fed’s decision on Wednesday, where a 25-basis-point cut is fully priced in.
“There are certainly concerns around the politicisation of the Fed and President Trump’s pressure…to try to sort of, I guess, stack the board,” said Tony Sycamore. “However, I believe… a 25-basis-point cut still remains in place.” Anticipation of upcoming Fed rate cuts has maintained a positive market sentiment in recent sessions, propelling stocks to new highs. MSCI’s broadest index of Asia-Pacific shares outside Japan reached a more than four-year high early on Tuesday, last trading 0.3 percent higher, while Japan’s Nikkei and Topix indexes set new records. Equally crucial for markets will be the Fed members’ “dot plot” projections for rates and insights from Fed Chair Jerome Powell regarding the extent and pace of any additional easing.
Futures currently reflect 127 basis points of cuts anticipated by July 2026, meaning anything short of a dovish stance will likely disappoint investors. “There do seem to be quite a few rate cuts priced in now.” “On balance, maybe that suggests that the bar for a hawkish surprise is a little lower than that for a dovish one,” said Thomas Mathews. “The Fed is expected to maintain its cautious communication strategy and reveal little.” EUROSTOXX 50 futures declined by 0.09 percent, whereas FTSE futures increased by 0.08 percent. Nasdaq futures remained unchanged, while S&P 500 futures fell by 0.02 percent, following both indexes reaching all-time highs during the overnight cash session. Shares of Nvidia closed marginally down following China’s accusation on Monday that the AI chipmaker breached the nation’s anti-monopoly law, marking a new escalation in the Sino-US trade conflict.
In other news, US and Chinese officials announced on Monday that they have reached a framework agreement to transfer ownership of the short-video app TikTok to US control. This agreement will be confirmed during a call on Friday between Trump and Chinese President Xi Jinping. The Fed cut bets have pressured the dollar, which was struggling near a two-month low against the British pound on Tuesday. Sterling held steady at $1.3599, while the euro was last at $1.1758, close to a 1-1/2-month high of $1.1780 reached last week. The Australian dollar, sensitive to risk, climbed to a 10-month high of $0.6677. “The Aussie has been outperforming in recent weeks because markets have been expecting the FOMC to restart interest rate cuts and that’s positive for the global economic outlook, and at the same time… trade uncertainty has eased,” said Carol Kong.
US Treasury yields experienced a slight increase following a decline in the previous session, with the two-year yield currently at 3.5409 percent. The benchmark 10-year yield increased by approximately 1 basis point to 4.0451 percent. Oil prices continued to climb from the previous session as investors evaluated the effects of Ukrainian drone attacks on Russian refineries. Brent crude futures increased by 0.25 percent to $67.59 per barrel, while US crude saw a rise of 0.22 percent to $63.44 a barrel. Spot gold reached a record high of $3,689.27 an ounce, bolstered by a weaker dollar and expectations of a Fed rate cut.
