Asian stocks experienced an increase following a positive trend on Wall Street, as the Federal Reserve indicated the possibility of interest rate cuts later in the year to bolster economic growth. This announcement was made with the expectation that any inflation rise due to tariffs would be temporary. In response, Australian and South Korean stocks, along with US futures, saw gains. The S&P 500 rose by 1.1%, while the Nasdaq 100 increased by 1.3%. However, contracts in Hong Kong remained largely unchanged after a decline in US-listed Chinese stocks, hinting that China’s outperformance against US equities could be waning this year. No trading of cash Treasuries occurred in Japan due to a holiday.
The Federal Reserve maintained current interest rates on Wednesday, aligning with economists’ predictions. Chair Jerome Powell provided a cautious assessment of the potential economic influence of President Donald Trump’s policies, describing the effect of tariffs on inflation as “transitory.” The stock market surged in response to these developments, marking the largest increase on a Federal Reserve decision day since July, following a challenging four-week period during which the S&P 500 entered a correction phase.
On Wednesday, there was a notable shift in Treasuries, with two-year yields dropping below 4%, and the benchmark 10-year yield decreasing by four basis points to 4.24%. Concurrently, a dollar index moved upward. Christian Hoffmann from Thornburg Investment Management commented on the market’s interpretation of the Federal Reserve’s stance as moderately dovish, noting that the body appeared unconcerned with current economic conditions or inflation, which brought optimism to both stock and bond markets.
The rally in US stocks persisted despite forecast changes by the Federal Reserve that might have been perceived as negative for equities, including reduced growth predictions for 2025 and an elevated inflation estimate. Amanda Lynam, head of macro credit research at BlackRock Financial Management, explained that the market correction had already reflected a significantly worse economic scenario than when the Federal Reserve last convened.
In the Asian context, upcoming economic data includes China’s one-year and five-year loan prime rates, Australia’s unemployment figures, Hong Kong’s inflation rate, and a rate decision from Taiwan. Later on Thursday, the Bank of England is predicted to maintain its interest rates, while the Swiss National Bank is expected to reduce rates by 25 basis points.
Furthermore, Tencent Holdings Ltd. announced plans to enhance its investment in AI infrastructure, following its swiftest revenue growth pace since 2023. In South Korea, Samsung Electronics Co. committed to fortifying its position in the high-bandwidth memory chip sector amid shareholder critiques.
Regarding the Fed’s decision, Powell’s assurances concerning recession risks, which he deemed “not high,” alleviated investors’ anxieties. The Federal Reserve’s adjustments to growth projections further stimulated the bond market rally, as traders and the Fed shared a common expectation for rate cuts this year. Bill Dudley, a former president of the New York Fed, noted on Bloomberg Television that Powell’s performance was seen as calming and confident, suggesting effective management of the situation.
The Federal Reserve also announced it would begin to slow the reduction of its balance sheet starting the following month, decreasing the volume of bonds allowed to mature each month. Meanwhile, oil prices rose on Wednesday after a US government report eased worries about the immediate threat to demand, and gold reached a new peak as the Fed projected slower economic growth coupled with higher inflation.
