Asian shares rise as dollar, yields decline on expected larger Fed rate cut

WEB DESK: Asian stock markets saw gains on Tuesday, while the dollar and US Treasury yields faced pressure. This comes just a day before the anticipated start of the Federal Reserve’s easing cycle, which could involve a significant rate cut.

With extended holidays in China and South Korea leading to light trading, investors are focusing on Wednesday’s Fed decision. Over the past week, the chances of a 50-basis-point rate cut have increased.

The dollar remained weak, trading near its lowest level in over a year against the yen at 140.64, having previously dipped below the 140-yen mark. The stronger yen raised concerns about Japanese exporters’ profits, contributing to a 2 per cent drop in Tokyo’s Nikkei index as the market reopened after a holiday.

In contrast, MSCI’s broadest index of Asia-Pacific shares rose by 0.47 per cent, with Hong Kong’s Hang Seng Index advancing by 1.44 per cent. Futures for the S&P 500 and Nasdaq saw slight declines, while EUROSTOXX 50 and FTSE futures increased by 0.33 per cent and 0.57 per cent, respectively.

Markets are now pricing in a 67 per cent chance of the Fed implementing a 50-basis-point rate cut at its meeting on Wednesday, following recent media reports suggesting more aggressive easing measures.

Neil Shearing, group chief economist at Capital Economics, noted that while the case for a significant rate cut is strong, it also risks signalling that central bankers are lagging behind economic needs.

For the year, markets anticipate approximately 120 basis points of easing by December. The two-year US Treasury yield, reflecting short-term rate expectations, recently stood at 3.5547 per cent, after dropping to a two-year low of 3.5280 per cent. The 10-year yield remained stable at 3.6232 per cent.

In other central bank news, the Bank of England (BoE) and the Bank of Japan (BOJ) will also meet this week, with expectations that both will maintain their current rates.

The less aggressive stance anticipated from the BoE, compared to the Fed, has supported the pound, which was down 0.1 per cent at $1.3202 but remained near its August peak of $1.3269.

Economists at ANZ expect the BoE to keep the bank rate unchanged at 5.0 per cent during its September meeting, predicting a gradual approach to easing.

In Asia, China’s slow economic recovery continues to dampen sentiment. Recent data showed that industrial output growth in August hit a five-month low, with retail sales and new home prices also declining.

However, concerns about reduced Chinese demand for oil were overshadowed by the effects of Hurricane Francine on US Gulf of Mexico production, pushing oil prices higher. Brent crude futures rose by 0.44 per cent to $73.07 per barrel, while US crude futures increased by 0.67 per cent to $70.56 per barrel.

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