Asian markets showed a mixed performance on Monday following a positive rally in U.S. stocks, buoyed by expectations of impending interest rate cuts by the Federal Reserve to support economic growth. U.S. futures slightly decreased while oil prices climbed higher after Israel and Hezbollah engaged in heavy confrontations, raising concerns about potential supply disruptions in the market.
Federal Reserve Chair Jerome Powell recently indicated the necessity of reducing the main interest rate from its long-standing high. Powell emphasized the need for policy adjustments, affirming that the course for rate cuts is clear and will be contingent on incoming data and the economic outlook.
The yen strengthened against the dollar, leading to a 0.30% decline in the dollar-yen rate to 143.95 during early Monday trading. Meanwhile, the Bank of Japan’s governor suggested the possibility of future interest rate hikes if inflation continues on track towards the 2% target.
In Asian markets, Japan’s Nikkei 225 slipped by 1.1%, Hong Kong’s Hang Seng index rose by 1.0%, the Shanghai Composite index declined by 0.1%, Australia’s S&P/ASX 200 climbed by 0.7%, and South Korea’s Kospi fell by 0.2%. On the prior trading day, the S&P 500 gained 1.1%, the Dow Jones Industrial Average rose by 1.1% surpassing the 41,000 mark, and the Nasdaq composite jumped by 1.5%.
Powell’s address indicated a significant shift in the Fed’s stance from two years ago when rates were steadily increasing. The Fed now aims to address economic slowdown concerns rather than inflation control. Although Powell didn’t provide detailed information regarding upcoming Fed actions, his comments spurred a widespread rally on Wall Street on Friday.
Treasury yields dipped since April in anticipation of a potential Fed rate cut. Notably, the performance of traders who have sometimes erred in predicting Fed actions poses a risk if expectations become overly optimistic. The bond market saw a decline in yields following Powell’s speech, with the 10-year Treasury yield at 3.79% and the two-year Treasury yield at 3.91%. Meanwhile, in energy trading, U.S. crude oil prices rose to $75.34 a barrel, and Brent crude reached $78.71 a barrel. The euro traded at $1.1184, down from $1.1190.