Asian markets surge as Federal Reserve signals rate cuts

Asian markets rallied on Friday, building on the momentum from the previous day’s surge. Investors recalibrated their outlook for the new year following the Federal Reserve’s unexpected indication of interest rate cuts at this week’s policy meeting.

The more-dovish-than-expected pivot by the Federal Reserve has set the stage for a potential Santa rally, with indicators suggesting that inflation in the world’s largest economy is being controlled, steering clear of recession fears.

As markets absorb this shift, the focus now turns to the timing and quantity of the anticipated rate cuts. Some experts, including JPMorgan economists, go beyond the Fed’s initial projection of three cuts, foreseeing a total of five.

Optimism soared as the prospect of easier borrowing conditions next year propelled the Dow to a second consecutive record high. Meanwhile, the S&P 500 stands just shy of its own all-time peak.

Asia joined the upbeat momentum, spurred further by news that China injected more cash than anticipated into its financial system.

Hong Kong led the way, surging over three percent, with Shanghai also experiencing gains.

Tokyo rebounded from previous losses as the yen’s rally against the dollar faded. Sydney, Seoul, Taipei, and Manila also painted positive figures.

Despite the positive outlook for stocks, caution lingers. Stephen Innes at SPI Asset Management warned of a potential slight pullback in the latest rally.

He noted, “A temperature check is bound to occur with so many folks thinking the market has gotten too far over its skis on the pace of rate cuts.”

In currency markets, the dollar edged up against the yen after a dip on Wednesday in response to the Fed’s plans to soften rates.

Traders are now eagerly awaiting the Bank of Japan’s policy decision next week after suggestions that officials might move away from their ultra-loose policy.

Oil prices continued to rise, fueled by Thursday’s rally of more than three percent. Positive momentum was further supported by a dip in US stockpiles, though concerns linger over the balance between supply and demand as the United States continues to pump and questions persist about OPEC’s commitment to tightening the taps.

Key Figures Around 02:30 GMT:

Tokyo – Nikkei 225: UP 1.2 percent at 33,080.37 (break)
Hong Kong – Hang Seng Index: UP 3.2 percent at 16,920.70
Shanghai – Composite: UP 0.5 percent at 2,972.84
Dollar/yen: DOWN at 142.35 yen from 141.87 yen on Thursday
Euro/dollar: DOWN at $1.0986 from $1.0996
Pound/dollar: DOWN at $1.2756 from $1.2764
Euro/pound: DOWN at 86.10 pence from 86.12 pence
West Texas Intermediate: UP 0.2 percent at $71.73 per barrel
Brent North Sea crude: UP 0.2 percent at $76.78 per barrel
New York – Dow: UP 0.4 percent at 37,248.35 (close)
London – FTSE 100: UP 1.3 percent at 7,648.98 (close)