Asian Stocks Gain as Investors Count Down to Cuts: Markets Wrap – Yahoo Finance

August 25, 2024

(Bloomberg) — Asian stocks rose for a third straight session and the yen rose to a three-week high as expectations of a Federal Reserve interest rate cut were on the horizon, buoying market sentiment.

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Australian and Hong Kong shares rose on Monday after Fed Chairman Jerome Powell said in a speech at Jackson Hole that “it’s time” to shift to easier monetary policy. The Fed’s dovish tone also boosted the yen against the dollar, as Asian funds increased their short positions in the greenback. Japanese shares fell on the strength of the local currency, while U.S. contracts were stable.

Hopes of lower U.S. borrowing costs have rippled through financial markets, with global stocks trading just shy of all-time highs, the U.S. dollar weakening and investors pouring money into government bonds. The yield on the 10-year U.S. Treasury note fell 1 basis point to 3.79% on Monday.

“It should become risk-on,” said Chamath de Silva, head of fixed income at BetaShares Holdings in Sydney. “Now that Powell has confirmed we’re about to enter an easing cycle and the fight against inflation is over, I expect everything to move up a bit and both stocks and bonds to do well.”

Along with the Fed’s bets, safe-haven buying on rising tensions in the Middle East also helped lift oil prices, which rose 0.7% after Israeli attacks on Hezbollah positions in southern Lebanon sparked fears of an escalation of conflict in the region.

The Bloomberg Asia Dollar Index opened the week at its highest since January, while the South Korean won strengthened and the Singapore dollar rose to its highest in nearly a decade as traders weighed the differences between the Singapore monetary authority’s relatively hawkish policy outlook and that of the Federal Reserve.

Powell’s long-awaited Jackson Hole speech marks a turning point in the Fed’s two-year battle to rein in inflation and means officials are likely to cut the benchmark interest rate, which is at its highest in more than two decades. The world’s largest economy is showing signs of slowing, justifying the change in course, but there are no signs of an outright recession yet.

“My view is the US is heading for a soft landing,” said Khoon Goh, head of Asia research at ANZ Group Holdings Plc. “This Fed easing cycle will see strong appreciation and rebound in Asian currencies.”

Elsewhere in Asia, the People’s Bank of China left its one-year policy lending facility rate unchanged at 2.3% after cutting it by 20 basis points in July. The bank has indicated it is downplaying the role of the facility as a policy tool and placing more emphasis on the seven-day reverse repo rate.

The decision underscores Beijing’s cautious approach to supporting the economy at a time when bank lending is suffering a rare drop amid sluggish demand. The central bank has in recent months walked a delicate balance between stimulating growth and curbing a surge in bond purchases to contain financial risks.

Reflecting the economic downturn, the CSI 300 stock index fell as much as 0.5% on Monday.

Chinese authorities have also begun stress tests of financial institutions’ bond investments to see whether they can handle market volatility if the record rally is reversed, state media said.

Gold, meanwhile, is stabilizing near record highs after Powell confirmed hopes of a rate cut.The precious metal has surged more than 20% this year, fueled by Fed hopes, safe-haven demand due to geopolitical risks and buying by central banks and Asian consumers.

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