Asian stocks dive after Fed flags slower rate cuts, BOJ decision awaited
By Ankur Banerjee
SINGAPORE (Reuters) – Asian shares slid, bond yields rose and the dollar hit a two-year high on Thursday as the U.S. Federal Reserve warned it would ease the pace of interest rate cuts next year and investors braced for a Bank of Japan policy decision.
The Fed cut interest rates on Wednesday as expected, but Chairman Jerome Powell’s clear references to the need for caution from now on sent U.S. stocks sharply lower as Treasury yields rose and traders trimmed bets on a rate cut next year.
The Dow Jones Industrial Average fell more than 1,000 points. [.N]
Asian stocks took a hit from Wall Street as MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1%.Japan’s Nikkei fell 1.8% and Australian shares fell more than 2%. who
“I think we’re in a good place, but I think it’s a new phase from here and we’re going to be cautious about further cuts,” Powell said at a news conference.
U.S. central bankers now forecast they will cut by just two-quarters of a percentage point by the end of 2025, half a percentage point less in terms of easing next year than officials had forecast as of September.
“The Fed was more dovish than we expected, but today’s change in policy guidance is consistent with our view of a prolonged Fed easing in early 2025,” said Prashant Newnahan, senior Asia-Pacific rate strategist at TD Securities. :
“The most meaningful surprises have been centered on inflation forecasts, which are strengthening over a longer period of time.”
The changing expectation of a Fed rate cut on Wednesday lifted the dollar index, which measures the U.S. currency against six rivals, to its highest since November 2022. It was last at 108.15 in early trade on Thursday. [FRX/]
Sterling was steady at $1.25835 ahead of the Bank of England’s policy decision, when the central bank is expected to keep interest rates unchanged despite signs of a slowing economy.
The yield on the benchmark US 10-year note hit a seven-month high of 4.524% on Wednesday and was last at 4.51% in early Asian hours.
Tony Sycamore, market analyst at IG, said the outcome of the Fed meeting shouldn’t have come as too much of a surprise to investors who have been following recent US inflation and activity data.
“However, it served as a catalyst to remove some of the speculative excess that had flowed into risk assets, including stocks and bitcoin, following the US election,” he said.
Bitcoin fell to $100,340 on Wednesday after Powell said the US central bank was unwilling to get involved in government efforts to hoard large amounts of bitcoin.
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