Asian stocks mixed after Wall Street rallies as ‘time has come for rate cuts’
HONG KONG (AP) — Asian shares were mixed Monday after U.S. stocks climbed near records on expectations that the Federal Reserve will soon begin cutting interest rates to help the economy.
U.S. futures edged lower. Oil prices rose after Israel and the Lebanese militant group Hezbollah exchanged heavy shelling early Sunday, raising potential supply concerns in markets.
On Friday, Fed Chairman Jerome Powell said it was time to cut interest rates from a two-decade high.
“It is time to adjust policy,” Powell said. “The direction is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the allocation of risks.”
The dovish stance strengthened the yen against the dollar, with the dollar-yen exchange rate falling 0.30 percent to 143.95 in early trading on Monday.
The governor of the Bank of Japan indicated on Friday that further interest rate hikes could occur if inflation remains on track and sustainably reaches the two percent target. He also mentioned that the bank is closely monitoring recent fluctuations in stock prices and currencies.
The Japanese benchmark index Nikkei 225 lost 1.1 percent to 37,944.68 in morning trading due to the stronger currency.
The Hang Seng Index in Hong Kong rose 1.0% to 17,786.31, while the Shanghai Composite Index fell 0.1% to 2,852.34.
The Australian S&P/ASX 200 rose 0.7% to 8,076.10. The South Korean Kospi lost 0.2% to 2,695.24.
On Friday, the S&P 500 rose 1.1 percent to 5,634.61, after the index came within 0.6 percent of its all-time high hit last month and erased virtually all of its losses from a brief but frightening summer slump.
The Dow Jones Industrial Average rose 1.1 percent to 41,175.08, breaking the 41,000-point mark for the first time since its own record in July, while the Nasdaq Composite rose 1.5 percent to 17,877.79.
Powell’s speech marked a sharp turnaround for the Fed after it began raising interest rates two years ago when inflation was rising to generational highs. The Fed’s goal was to make credit so expensive for U.S. households and businesses that it would slow the economy and dampen inflation.
While Powell was keen to stress that the job is not yet complete, he used the past tense to describe many of the conditions that drove inflation higher after the pandemic, including a labor market that is “no longer overheated.” That means the Fed can now devote more time to its other dual mission: protecting an economy that is slowing but has so far exceeded many recession predictions.
In the second part of his statement, he held back some details that Wall Street was keen to hear.
Treasury yields in the bond market had already fallen sharply since April on expectations that the Federal Reserve would cut its benchmark interest rate next. The only question was how much the Fed would cut and how quickly it would act.
One danger is that traders have set their expectations too high, which they have done frequently in the past. If their predictions are wrong, which also happens regularly, it could mean that Treasury yields have already fallen too far since they began their decline in the spring. That, in turn, could put pressure on all types of assets. On Thursday, for example, the S&P 500 fell to its worst loss in more than two weeks after Treasury yields rose.
At least on Friday, Powell’s speech helped spark a major rally on Wall Street.
Smaller stocks in the Russell 2000 rose 3.2 percent, leading the market. Smaller companies can benefit more from lower interest rates because they need to borrow to grow.
In the S&P 500 index of large companies, more than 85% of stocks rose.
In the bond market, the yield on 10-year U.S. Treasury notes fell to 3.79 percent from 3.86 percent late Thursday. The yield on two-year U.S. Treasury notes, which is more closely tied to expectations of Fed action, fell to 3.91 percent from 4.01 percent late Thursday.
In energy trading, the US benchmark price for crude oil rose by 51 cents to $75.34 per barrel. The international standard for Brent crude oil rose by 56 cents to $78.71 per barrel.
The euro cost 1.1184 dollars, a decrease from the previous year (previously 1.1190 dollars).
