A television station displays Jerome Powell, chairman of the US Federal Reserve, speaking at the Kansas City Federal Reserve's Jackson Hole Economic Policy Symposium on the floor of the New York Stock Exchange (NYSE) in New York, US, on Friday, Aug. 23, 2024. Powell said the time has come for the Federal Reserve to cut its key policy rate, affirming expectations that officials will begin lowering borrowing costs next month and making clear his intention to prevent further cooling in the labor market. Photographer: Michael Nagle/Bloomberg via Getty Images The MSCI AC Asia Pacific Index declined, with the Nikkei 225 off more than 2% even as benchmarks for Australia and Hong Kong rose. Futures for US stocks slipped after the S&P 500 rose 0.1% while the Nasdaq 100 slid 0.5%, as investors continue to rotate out of the tech mega caps that have powered the bull market.
The dollar held around its lowest level since January as traders boosted bets the Fed will deliver a half-point rate cut Wednesday. Markets have been predicting a cut of anywhere between 25 and 50 basis points as US economic data have started to weaken, though inflation has remained sticky. US retail sales out later on Tuesday may offer clues on the upcoming Fed decision.
“The mood today in Asia should be mostly positive today, with the US rates market now leaning heavily toward a 50bp Fed rate cut.,” said Tony Sycamore, an analyst at IG Australia Pty Ltd. But, the upcoming BOJ meeting may affect sentiment toward Japanese shares and, “should Ueda indicate an October rate hike is possible, USD/JPY and the Nikkei will likely come under renewed selling pressure.”
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In Hong Kong, Chinese appliance giant Midea Group Co. shares climbed as much as 9.5% in its stock market debut, after robust demand for the biggest public stock offering in three years revives hopes for the city’s languishing market.
Concern continues about the strength of China’s economy. Disappointing economic data over the weekend is adding pressure on the authorities to ramp up fiscal and monetary stimulus if the nation is to reach this year’s growth target.
The country faces yet another challenge in proposed tariffs by the US in areas such as medical products. Malaysian glove-maker shares including Top Glove Corp surged on Tuesday after the US was expected to finalise tariffs on Chinese goods this month.
Trading in China, Taiwan and South Korea was shut for public holidays.
Meanwhile, the yen was steady after strengthening beyond 140 per dollar for the first time since July 2023 on Monday, as the Japanese currency extended its rally from the weakest point in nearly 38 years in July.
The yen has been steadily appreciating from market expectations that the interest rate differential between the US and Japan will narrow further leading to a decline in the export-heavy Japanese equities.
The Bank of Japan is expected to stay on hold on Friday after raising rates twice this year with all 53 economists surveyed by Bloomberg said Ueda’s board will leave the benchmark rate at 0.25% when its two-day meeting concludes Friday.
Leveraged funds are diverging in their positions on the yen. Some short-term funds locked in profits ahead of the monetary-policy decisions this week, while others are looking to increase their long-yen positions on bets for a large rate cut by the Fed.
In commodities, gold remained near record levels, with traders betting that it’ll benefit from a weaker US dollar and lower Treasury yields off the Fed decision. Other precious metals gained, with silver rising toward $31 an ounce, up for a seventh straight day and on pace for the longest stretch of daily gains since 2019.