Amid mulls Fed outcomes, Asia remains optimistic on bond rate cuts

Amid mulls Fed outcomes, Asia remains optimistic on bond rate cuts

Amid mulls Fed outcomes, Asia remains optimistic on bond rate cuts

The Federal Reserve Committee adopted a more cautious stance by announcing that it would not lower rates until it had more confidence, even if its decision to hold rates at 5.25–5.5% on Wednesday was not surprising. Let's see a true stop to inflation.

Although investors continued to bet on a significant reduction in US interest rates this year, even if the start date is now a bit later than anticipated, Asian markets declined on Thursday after a late-night decline on Wall Street.

The Federal Reserve Committee adopted a more cautious stance by announcing that it would not lower rates until it had more confidence, even if its decision to hold rates at 5.25–5.5% on Wednesday was not surprising. Let's see a true stop to inflation.

Fed Chairman Jerome Powell frankly said at a press conference that it was doubtful that the committee would make a reduction in early March, but he also recognized that this year's drop was what all of the members were hoping for.

According to JPMorgan analysts, "Another sobering aspect of Powell's comments was a difference on employment: Strong employment gains would ultimately not necessarily prevent a rate cut, but weak employment gains would ultimately 'absolutely' precipitate a rate cut."

"We stand by our call for the initial cut in June, but following Powell's statement it is not difficult to see a configuration of the unemployment and inflation data in which the Committee might reconsider by May."

The market actually doubled from the move in May, resulting in a 32 basis point reduction in prices. This implies that there is a 100% likelihood of a 25 basis point relaxing and a 50% possibility of a 50 basis point easing.

Analysts at Goldman Sachs said, "We have pushed back the prediction for the first cut from March to May." "But since we anticipate that core inflation will decline by at least a tenth of the FOMC's average forecast this year, we expect another five cuts in 2024 and three in 2025."

Additionally, investors believe that slower inflation would cause real rates to rise and that the longer the Fed waits, the more aggressively it will have to reduce in the future.

Because of this, the price of December Fed funds futures has dropped by an additional 13 basis points this year, resulting in an estimated total reduction of 143 basis points.

Similarly, after the Fed's announcement, 10-year rates dropped 12 basis points to 3.91%, sparking a robust increase in Treasuries. Asia caused a partial counterbalance to those gains, pushing yields up to 3.950%.

panic in banks

Rekindled concerns over smaller US banks contributed to the bond rally, as New York Community Bancorp had an unexpected loss send it plunging 37% to its lowest level in 20 years.

This had a knock-on effect on other bank companies, causing the S&P 500 to plummet sharply late on Wednesday. Meanwhile, the Nasdaq was already feeling the heat from losses in Tesla and Alphabet Inc.

Early on Thursday, mood had leveled down, and futures on the S&P 500 were up 0.2% and those on the Nasdaq were up 0.3%. When the outcomes of Apple, Amazon, and Meta are announced at the end of the day, the market will be put to the test.

The MSCI's broadest index of Asia-Pacific equities outside of Japan lost 0.3% as choppy trading alerted Asian markets.

The Nikkei in Japan fell 0.5% as the currency strengthened, but manufacturing activity in South Korea increased 0.7% according to a survey, marking the first increase in 19 months.

Chinese blue chips saw a 0.4% dip, which is still better than the unsatisfactory factory report from January.

The Fed's erratic reaction surprised the currency markets, causing the dollar to rise vs the euro but fall versus the yen as bond rates decreased.

The euro was down only 0.2% on Wednesday, trading at $1.0805. The dollar was trading at 146.86 yen, down from 146.00 yesterday.

Gold also saw a rise in response to the Fed, reaching an ounce of $2,040.

Wednesday saw little change in oil prices due to worries about Chinese demand and an unexpected growth in US crude oil stockpiles.

While U.S. crude increased by 10 cents to $75.95 per barrel, Brent futures increased by 12 cents to $80.67.