Asian Equities Rise as Bets on Fed Rate Cut Fuel Global Rally
Asian equities surged on Wednesday, following a global rally fueled by expectations that the Federal Reserve will soon start cutting interest rates. Stocks in Hong Kong opened higher, while those in mainland China declined. Equity benchmarks in Japan and Australia climbed, with South Korean stocks remaining steady after US shares reached new highs, pushing global stocks to a new peak.
The optimism surrounding a potential rate cut by the Fed has boosted risk appetite, with US retail sales data showing consumer resilience and fueling hopes for a soft landing. This sentiment has led to a rotation into smaller stocks, with the Russell 2000 Index posting its best performance since April 2020.
Mitsushige Akino, president of Ichiyoshi Asset Management, noted that small-cap stocks in Japan are expected to strengthen following the rise of the Russell 2000 Index in the US.
Australian and Japanese yields followed the drop in their US counterparts overnight, while Treasury yields rose slightly on Wednesday morning in Asia. The dollar remained stable, with the yen falling against the greenback for the third consecutive day.
Economic data releases in Asia include exports for Singapore and a monetary decision in Indonesia. Meanwhile, markets in India and Pakistan are closed.
Analysts at UBS Global Wealth Management believe that a significant rate cut by the Fed could lead to better prospects for earnings growth in lower quality and cyclical segments of the market. However, some Wall Street economists are cautioning that the Fed may be waiting too long to reverse course after raising interest rates.
In commodities, gold held steady after rallying to a record high on Tuesday, while West Texas Intermediate crude declined for a fourth day.
Key events to watch this week include Eurozone CPI data, US housing starts and industrial production figures, and the ECB rate decision.
Overall, the strength of the equity market has been supported by optimism that the economy can withstand the impact of Fed tightening, with better-than-expected retail sales data seen as a positive development. However, investors should be prepared for potential profit-taking in the sessions ahead.
This story was produced with the assistance of Bloomberg Automation.
