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Asian Stocks Retreat as Fed Sees Fewer Rate Cuts: Markets Wrap
Asian Stocks Retreat as Fed Sees Fewer Rate Cuts: Markets Wrap · Bloomberg
Richard Henderson
5 min read

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(Bloomberg) -- Asian stocks slid on Thursday, echoing a slump in US equities, after the Federal Reserve trimmed expectations for rate cuts next year.

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Equity benchmarks in Japan, Australia, South Korea and China declined, helping drag a gauge of regional equities more than 1% lower. US stock futures edged higher after the S&P 500 suffered its biggest loss since 2001 for a Fed decision day.

The yen traded near 155 per dollar following Wednesday’s slump as traders awaited a Bank of Japan decision where policymakers are expected to keep rates on hold. The prospect of fewer US rate cuts buoyed the dollar and sent Asian currencies tumbling, with the South Korean won dropping to its weakest level in more than 15 years.

“Asian currency and equity markets should inevitably be negatively affected today and possibly over the next few days,” said Tomo Kinoshita, global market strategist at Invesco Asset Management Japan. “Due to the negative market reaction to the FOMC, it will be even more difficult for the BOJ to raise policy rate today.”

The moves come after the Fed lowered rates by 25 basis points on Wednesday as expected, with the median policymaker now seeing just a half-percentage point of reductions next year, half of what was expected in September. The BOJ’s rate decision is the next event risk for traders, with any surprise in the policy outcome likely to whip up more volatility in global markets.

Treasury yields were little changed after rising across the curve in the prior session. Australian yields jumped Thursday, while those for New Zealand edged higher after the country’s economy fell into recession.

The last time the S&P 500 saw losses of the magnitude on Fed’s decision day was on Sept. 17, 2001, when the index fell nearly 5%. It dropped 12% on March 16, 2020, a day after the Fed’s emergency weekend meeting during the pandemic.

Fed Chair Jerome Powell said the central bank would be more cautious as it considers further adjustments to the policy rate, noting the Fed is committed to reaching its 2% inflation target. “We need to see progress on inflation,” he said. “We moved quickly to get to here but moving forward we are moving slower.”

Fed Outlook

Whitney Watson of Goldman Sachs Asset Management expects the Fed to skip a rate cut in January before resuming on its easing path in March.

“While the Fed opted to round out the year with a third consecutive cut, its New Year’s resolution appears to be for a more gradual pace of easing,” said Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions at the firm.

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