In This Article:
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Asian stock markets : https://tmsnrt.rs/2zpUAr4
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Nikkei slips, S&P futures edge up after late slide
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Markets shift Fed rate cut timing from March to May
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Fed futures still see sizable easing over 2024
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Earnings loom from Apple, Amazon and Meta
By Wayne Cole
SYDNEY, Feb 1 (Reuters) - Asian shares faltered on Thursday after Wall Street took a late spill, while investors stuck to bets for sizable cuts in U.S. interest rates this year even if the kick off might now be a little later than first hoped.
The Federal Reserve committee's decision to hold rates at 5.25-5.5% on Wednesday was no surprise, it took a dovish twist by emphasising that rates would not be cut until it had more confidence that inflation was truly beaten. In a media conference, Fed Chair Jerome Powell flatly stated a cut as early as March seemed unlikely, but also conceded that everyone on the committee was looking to ease this year.
"One of the more dovish aspects of Powell's remarks was the asymmetry on employment: strong employment gains won't necessarily forestall rate cuts, but weak employment gains would 'absolutely' hasten rate cuts," wrote analysts at JPMorgan.
"We are sticking with our call for a first cut in June, but after Powell's remarks it's not hard to see a configuration of employment and inflation data that gets the Committee cutting by May."
Indeed, markets actually doubled down on a May move, pricing in 32 basis points of cuts - implying a 100% probability of 25 basis points and some chance of a 50 basis-point easing. "We have pushed back our forecast of the first cut from March to May," said analysts at Goldman Sachs. "However, we continue to expect 5 cuts in 2024 and 3 more in 2025 because we expect core inflation to fall at least a couple of tenths below the FOMC's median projection this year."
Investors also seemed to be wagering that more the Fed delayed now, the more aggressive it would have to cut in the future given slowing inflation would sharply lift real rates.
As a result, Fed fund futures for December have priced in a further 13 basis points of easing this year taking the total expected to 143 basis points.
Likewise, Treasuries rallied strongly as 10-year yields dived 12 basis points to 3.91% in the wake of the Fed decision. Some of those gains were then pared in Asia, nudging yields up to 3.950%.
BANK JITTERS
The rush into bonds was further encouraged by renewed jitters over regional U.S. banks when New York Community Bancorp crashed 37% to the lowest in over two decades after posting a surprise loss.