(Bloomberg) — Equity futures rose along with Asian shares on hopes that a 0.5 percentage point interest rate cut by the Federal Reserve would help guide the world’s largest economy to a so-called soft landing.
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European and U.S. stock futures rose, with Japan leading the Asian gains. MSCI’s regional index posted its biggest gain in a week after most Asian stock indexes rose on Thursday on hopes of a recovery in the U.S. economy and lower borrowing costs.
Treasuries fell on the view that the aggressive move to start a rate-cutting cycle means the Fed will need to cut rates less in the long run. Chairman Jerome Powell himself has cautioned against assuming more big rate cuts will follow, suggesting borrowing costs may have to remain higher than pre-pandemic levels.
The Fed’s move bolstered hopes that the U.S. economy will avoid a downturn and that policymakers will not rush to ease monetary policy further, a stance that will likely support the dollar in the coming days. A survey of Bloomberg Terminal subscribers showed that an overwhelming majority expect a soft landing for the world’s largest economy, with 75% predicting that the economy will avoid a technical recession by the end of next year.
“The Fed’s significant rate cut signals a clear intent from the Fed to support the U.S. economy and aim for a ‘soft landing,'” strategists including Chetan Seth at Nomura Holdings Inc. wrote in a note. “As long as the U.S. can avoid a recession in the coming months, the Fed’s preemptive rate cuts should be broadly supportive of stocks.”
The Fed’s first rate cut in more than four years comes amid expectations of another 50 basis points of cuts at its two remaining policy meetings this year. Chairman Powell said beginning to unwind the Fed’s historic tight monetary policy in big steps while the U.S. economy is still strong would help stave off the possibility of a recession.
Meanwhile, the Bank of England is likely to hold off on a second consecutive rate cut when it meets on Thursday, maintaining its patience in reversing its most aggressive monetary tightening policy in decades. Governor Andrew Bailey may give investors a further hint that the central bank will cut rates again in November.
The dollar index fell after two straight days of gains, and the yen was trading around 143 yen to the dollar.With Friday’s decision, Bank of Japan Governor Kazuo Ueda faces the delicate task of keeping policy unchanged but ensuring investors are aware of upcoming interest rate hikes without spooking markets.
Keiichi Iguchi, senior strategist at Resona Holdings, pointed out that “U.S. long-term interest rates are rising due to the view that there is no need to rush to lower interest rates in the future, and domestic importers are selling yen, which is leading to the yen’s further depreciation.”
Elsewhere in Asia, Singapore shares are on track to close at their highest since 2007 as the prospect of lower interest rates lifted the country’s real estate investment trusts, making the high-yielding market more attractive.
The Hong Kong Monetary Authority cut its base interest rate for the first time in four years after the Fed cut rates, while New Zealand’s economy shrank in the second quarter. HSBC Holdings Plc cut its key benchmark interest rate in Hong Kong for the first time since 2019, a move that will bring relief to homeowners and borrowers in the Asian financial hub but is likely to hit profit margins.
Fed rate cut positive for Asian stocks, risk currencies, analysts say
Gold edged up after a turbulent session in which it hit a record high after the Fed cut, while oil was steady as investors weighed weak U.S. demand against the Fed’s rate cut and signs of rising tensions in the Middle East.
Major events this week:
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UK interest rate decision Thursday
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U.S. Conference Board Leading Index, Initial Jobless Claims, Existing Home Sales, Thursday
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FedEx’s financial results on Thursday
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Japan interest rate decision on Friday
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Eurozone consumer confidence on Friday
Some of the key market developments:
stock
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S&P 500 futures were up 1% as of 2:54 p.m. Tokyo time.
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Nikkei 225 futures (OSE) rose 2.1%
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Japan’s TOPIX rises 2.2%
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Australia’s S&P/ASX 200 rose 0.6%
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Hong Kong’s Hang Seng rose 1.9%
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The Shanghai Composite Index rose 0.6%
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Euro Stoxx 50 futures up 1%
currency
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The Bloomberg Dollar Spot Index fell 0.2%.
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The euro was little changed at $1.1127
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The Japanese yen weakened 0.3% to 142.72 yen to the dollar.
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The offshore yuan rose 0.4% to 7.0701 per dollar.
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The Australian dollar rose 0.5% to $0.6797.
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The British pound was little changed at 1.3218 dollars
Cryptocurrency
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Bitcoin rose 2.9% to $61,995.33.
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Ether rose 3.6% to $2,410.1.
Bonds
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The yield on the 10-year Treasury note rose 1 basis point to 3.71%.
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Japan’s 10-year government bond yield rose 2.5 basis points to 0.850%.
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Australia’s 10-year government bond yield rose 7 basis points to 3.93%.
merchandise
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West Texas Intermediate crude oil was little changed
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Spot gold rose 0.5% to $2,572.70 an ounce.
This story was produced with assistance from Bloomberg Automation.
–With assistance from Winnie Hsu and Masahiro Hidaka.
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