Asian Stocks Dip as Investors Anticipate US Rate Cut
Federal ReserveAsian stocks declined and the dollar remained stable on Tuesday as investors prepared for a potential cut in US interest rates later this week. Meanwhile, the yen showed little movement following a significant earthquake that struck Japan’s northeast region, though the overall impact was contained. Investor sentiment remained cautious ahead of a slew of central bank meetings, including a looming decision by the Reserve Bank of Australia on the day, as markets seek a clearer picture of the outlook for global interest rates. The RBA, SNB, and Bank of Canada are anticipated to maintain their current rates this week, while the Federal Reserve is largely expected to reduce borrowing costs on Wednesday. The focus now shifts to the aftermath of the Fed’s December rate cut, as bond investors prepare for a modest US easing cycle. Numerous banks foresee a reduction in the number of Fed interest rate cuts in 2026, citing persistent inflation worries and anticipations of a more robust US economy.
That has resulted in stocks trading sideways. MSCI’s broadest index of Asia-Pacific shares outside Japan declined by 0.28 per cent following a lackluster overnight session. Japan’s Nikkei experienced a slight decline of 0.08 per cent, whereas South Korea’s Kospi saw a decrease of 0.58 per cent. “The low-hanging fruit from risk management cuts is likely over and Chair (Jerome) Powell’s presser is likely to convey a more cautious approach going forward regarding additional policy recalibration,” said Prashant Newnaha. “The dot plot is expected to indicate one cut in 2026.” Should the dot plot indicate two cuts for the upcoming year, this would be considered dovish. While a rate cut is anticipated, certain strategists believe the Fed’s policy committee may be significantly divided. The meeting will take place against a backdrop of increased market curiosity regarding who will take over from Powell as Fed Chair when his term concludes in May next year. In an interview, White House Economic Adviser and leading candidate for the Fed Chair position, Kevin Hassett, stated that the Fed ought to persist in reducing interest rates.
According to data, traders are anticipating 77 basis points of easing by the end of next year. David Mericle, anticipates that the Fed will probably elevate the threshold for additional rate cuts, observing that there will be dissenting voices within the committee regarding further easing, and that Powell will proceed with caution. “However, the FOMC must avoid overly restricting itself, particularly given that we are two employment reports behind, as a cut in January may indeed prove to be suitable.” Asian chip stocks experienced fluctuations following remarks from US President Donald Trump, who announced that the United States would permit the export of Nvidia’s H200 processors, the company’s second-best artificial intelligence chips, to China, while imposing a 25 percent fee on these sales. In early trading, China’s CSI Semiconductor Industry Index experienced a decline of approximately 1 percent. On Tuesday, the dollar exhibited a mostly steady performance in the currency markets. The euro was last valued at $1.1640, while sterling remained stable at $1.33225. The dollar index, a gauge of the US currency’s performance against six competitors, stood at 99.09. The index has experienced a decline of nearly 9 per cent this year, positioning it for its most significant annual drop since 2017.
The Australian dollar remained steady at $0.6625 as the RBA policy decision approached. The central bank is anticipated to maintain its current rates, though markets are concerned about potential hawkish signals in its commentary. The yen remained relatively stable at 155.87 per dollar during early Asian trading hours, following a period of weakness that occurred immediately after the earthquake. On Tuesday, Japanese authorities lifted tsunami warnings following a 7.5-magnitude earthquake that struck northeastern regions, resulting in injuries to at least 30 individuals and prompting the evacuation of approximately 90,000 residents from their homes. In commodities, gold was 0.13 percent higher at $4194.11 per ounce ahead of the Fed meeting. Oil prices stabilized following a 2 percent drop in the previous session, as market participants closely monitored peace talks aimed at resolving Russia’s war in Ukraine. Brent crude futures remained unchanged at $62.48 a barrel. US West Texas Intermediate crude was priced at $58.84, reflecting a decrease of 0.07 percent.
