On Tuesday, Asian markets exhibited mixed performance following a subdued session on Wall Street. Profit-taking activities tempered expectations for Federal Reserve interest rate cuts next year, while traders awaited crucial US inflation data scheduled for later in the week.
Recent indicators pointing to a slowdown in the economy, coupled with a consumer price increase below forecasts, have fueled optimism that the US central bank has likely completed its cycle of interest rate hikes. This has led to speculation that policymakers have successfully balanced reducing inflation without triggering a recession.
Analysts noted a slight concern that the readings could indicate potential weakness in the future. Apart from closely monitoring the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation guide, investors will focus on other indicators this week, including consumer confidence and gross domestic product.
Several central bank officials, including Fed Chair Jerome Powell, are scheduled to speak. However, they are expected to maintain their stance that policy decisions will be data-driven, and they anticipate keeping rates higher for an extended period to fully control inflation.
“The market appears to have embraced the idea that slowing economic data will hasten the arrival of market-friendly rate cuts, even though the Fed has continued to telegraph otherwise,” remarked Chris Larkin at E*Trade from Morgan Stanley. “This week will provide plenty of opportunities for traders to decide whether that cooling trend is intact.”
Market data indicates that traders anticipate nearly a one-percentage-point cut through the next year, with US Treasury yields continuing to retreat from their 16-year highs last month.
In morning trade, Hong Kong, Tokyo, and Singapore experienced declines, while Shanghai remained relatively flat. On the positive side, Sydney, Seoul, Wellington, Taipei, Manila, and Jakarta recorded gains.
The expectation of future rate cuts has exerted pressure on the dollar, which extended its losses against the yen and pound from Monday’s session. Traders are also closely monitoring developments in the oil markets as OPEC and its key allies prepare for a meeting scheduled for November 30, delayed due to some African countries reportedly opposing additional production cuts proposed by Saudi Arabia. The Saudis and Russia are reportedly considering announcing further output reductions into the new year to support prices amid slowing economies and weakened demand.
Shayne Heffernan
