Following Wall Street’s gain, Asian equities saw a wide increase on Wednesday as investors bought into year-end optimism fueled by predictions that the Federal Reserve may start lowering interest rates as early as March of next year.
The expectation that major central banks worldwide might start lowering rates in 2024, with the Fed leading the way, continues to dominate market sentiment as traders wind down with few significant economic data releases anticipated between now and the end of the month.
Global markets have rallied as a result of such wagers, prompting a wave of risk-taking. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) has gained 0.6% as of late. The index saw a 20% fall in 2022, its worst performance since 2008, but it was expected to end the year around 2.5% higher. This month, it gained 2.3%.
After being closed for Christmas and Boxing Day, Hong Kong’s Hang Seng Index (.HSI) had a 0.9% increase on its first trading day. Japan’s Nikkei (.N225) saw a 1.2% spike. According to the CME FedWatch tool, market pricing now indicates a more than 80% possibility that the Fed will likely start reducing rates in March of next year, with more than 150 basis points of easing factored in for the year 2024.
According to Tim Murray, a capital markets analyst at T. Rowe Price’s multi-asset division, “One of the most notable developments of 2023 came at the end of the year when the Federal Open Market Committee (FOMC) delivered a surprisingly dovish signal at its December meeting. This is a big deal. We spent 2023 fearing that the impacts of tight monetary policy would drag the economy into recession. Happily, that did not happen, and a more dovish Fed means the likelihood of a recession in 2024 has fallen considerably.”
The dollar continued to lose ground in the currency market, hovering around a four-month low compared to the euro and a five-month low against a basket of other currencies.
A summary of views from this month’s Bank of Japan (BOJ) policy meeting indicates that officials are still undecided on whether and when the central bank should abandon its ultra-loose monetary policy, which contributed to the yen’s 0.2% decline to 142.68 per dollar.
The report provided on Wednesday revealed that although the board decided to keep the enormous stimulus in place for the time being, its nine members were divided between those who were hesitant to raise interest rates and others who felt that steps needed to be taken to begin planning for a potential exit.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets, stated, “The BOJ minutes sounded dovish with some members noting that upside inflation risks remained small, thus there was no need for ‘rapid tightening’.”
In addition, worries over additional ship assaults in the Red Sea caused prices of Brent and WTI oil futures to drop, although they were still very close to their one-month highs from the previous session.
The United Nations expressed concern about an increase in Israeli attacks that resulted in the deaths of over 100 Palestinians over two days in a portion of the Gaza Strip, while Israel’s military leader stated on Tuesday that the country’s conflict with Hamas will endure for months.
U.S. crude dropped 35 cents to $75.21 and Brent dropped 27 cents to $80.80 a barrel. Spot gold dropped to $2,065.19 per ounce or 0.07%.
- Published By Team Genuine Reporter