Asian markets forged higher on Thursday after the Federal Reserve kicked off its efforts to prevent a recession in the U.S. with a bigger-than-usual cut to interest rates.
In Tokyo, the Nikkei 225 index jumped 2.5% to 37,284.43. Hong Kong’s Hang Seng gained 1% to 17,840.93.
The Shanghai Composite index climbed 0.8% to 2,738.19, while Taiwan’s Taiex was up 1%.
South Korea’s index was an outlier, losing 0.3% to 2,566.65.
The Bank of Japan and the Bank of England are also holding monetary policy meetings this week. Neither central bank is expected to move on rates, though the language of what the officials say could be an indicator of later moves and still influence markets.
Because the Fed’s half-percentage point rate cut was so well telegraphed and because markets had already climbed so much in anticipation, Wall Street’s reactions to the 180-degree turn on its policy rate were relatively muted.
“Markets barely reacted to the Fed’s 50 (basis point) rate cut, on balance, and our base case is that further cuts won’t move the needle too much either,” Thomas Mathews of Capital Economics said in a commentary.
It was the first cut to the federal funds rate in over four years, ending a stretch where the Fed kept rates at a two-decade high to slow the U.S. economy enough to stifle the worst inflation in generations.
On Wednesday, the S&P 500 slipped 0.3%, closing at 5,618.26. The Dow Jones Industrial Average dipped 0.2% to 41,503.10. The Nasdaq composite lost 0.3% to 17,573.30.
The momentous move by the Fed helps financial markets in two big ways. It eases the brakes off the economy, which has been slowing under the weight of higher rates, and it gives a boost to prices for all kinds of investments. Besides stocks, gold and bond prices had already rallied in recent months on expectations that rate cuts were coming.
Now that inflation has eased significantly from its peak two summers ago and appears to be heading toward 2%, the Fed says it it can turn more of its attention toward protecting the slowing job market and overall economy.
“The time to support the labour market is when it’s strong and not when you begin to see the layoffs,” Fed Chair Jerome Powell said. “That’s the situation we’re in.”
Some critics say the Federal Reserve may have already kept interest rates too high for too long, but Powell said “We don’t think we’re behind.”
“We think this is timely. But I think you can take this as a sign of our commitment not to get behind,” Powell said in a press conference following the Fed’s announcement.”
“The focus has now decisively shifted to the labor market, and there’s a sense that the Fed is trying to strike a better balance between jobs and inflation,” Stephen Innes of SPI Asset Management
Like stock prices, Treasury yields wavered up and down repeatedly immediately after the Fed announced its cut and published its projections.
The 10-year Treasury yield eventually rose to 3.70% from 3.65% late Tuesday. The two-year yield, which more closely follows expectations for Fed action, edged up to 3.62% from 3.60% late Tuesday.
On Wall Street, Intuitive Machines soared 38.3% after NASA awarded it with a contract worth up to $4.82 billion for communication and navigation services the space agency will use to establish a long-term presence on the moon.
Trading in Tupperware Brands remained halted after the company filed for Chapter 11 bankruptcy protection. Its stock has been sinking, down to 51 cents, since a mini-revival early in the pandemic sent its stock above $30.
All told, the S&P 500 slipped 16.32 points to 5,618.26. The Dow dropped 103.08 to 41,503.10, and the Nasdaq composite lost 54.76 to 17,573.30.
In other dealings, U.S. benchmark crude oil lost 20 cents to $69.68 per barrel in electronic trading on the New York Mercantile Exchange.
Brent crude, the international standard, declined 22 cents to $73.43 per barrel.
The dollar rose to 143.37 Japanese yen from 142.29 yen. The euro slipped to $1.1101 from $1.1120
