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HONG KONG — Hong Kong stocks were mixed on Thursday after the Federal Reserve signaled a possible interest rate cut next month, but Tokyo’s Nikkei fell as the yen strengthened after the Bank of Japan raised interest rates.
U.S. central bank President Jerome Powell said policymakers are growing confident that inflation and the economy have reached a point where they can begin to ease monetary policy.
He said after a much-anticipated two-day meeting, in which borrowing costs remained at a 23-year high as expected, that the first rate cut could come as early as September if data continued to improve.
“The committee’s overall view is that the economy is approaching levels that would warrant a reduction in the policy interest rate,” Powell told reporters, adding that inflation had “declined significantly.”
The comments came after a string of reports showed prices were contained and the labor market was softening. He also told lawmakers that inflation did not need to reach the Fed’s 2% target before it would cut rates.
Traders are now fully pricing in a September oil price cut, with two more possible price cuts before the end of the year.
“We continue to expect the Fed to cut rates in September and December, followed by four more 25 basis point cuts in 2025,” said Raisah Rasid of JPMorgan Asset Management.
However, she added a word of caution in her comments.
“Investors should be mindful of potential risks, which are sometimes underestimated, including the potential for slower economic growth and the impact of geopolitical uncertainty on the growth backdrop.”
Jeff Klingelhofer of Thornburg Investment Management was also cautious, writing: “The market is treating a September rate cut as 100% certain, but that is wrong.
“I’m sure the Fed wants to cut rates, but there are still two inflation data releases until September, so one bad data release could undo any rate cut efforts.”
The prospect of lower U.S. borrowing costs in about six weeks sent Wall Street’s three main indexes soaring. Most Asian stock markets followed suit in the morning, though some fell in the afternoon.
Sydney, Seoul, Wellington, Mumbai, Bangkok, Taipei, Manila and Jakarta all saw increases, as did London.
But Hong Kong, Shanghai and Singapore fell along with Paris and Frankfurt.
Tokyo stocks fell more than 2 percent, with Toyota, Sony and SoftBank taking heavy losses, as a stronger yen hurt companies reliant on exports.
Japanese stocks surged on Wednesday, extending gains in recent weeks after the Bank of Japan raised interest rates and ended its bond-buying program, moves that helped keep borrowing costs ultra-low.
The announcement comes as the Bank of Japan attempts to unwind its long-running monetary easing program to stimulate the economy. The March rate hike was the first since 2007.
Grzegorz Drozdz, market analyst at Invest.Conotoxia.com, said the yen’s depreciation has boosted exporters’ profits over the past three years, driving Japanese stocks to a surge and hitting a record high this year.
“Profits for companies in the index have collectively risen 32% during this period,” he said.
“So the current rapid strengthening of the yen is one of the reasons for the recent sell-off in equities. If the yen continues to strengthen, we could see a reversal of the upward trend.”
The yen has risen about 7.5% against the dollar since hitting a four-decade low of 162 yen to the dollar in early July.
The currency pair rose to as high as 148.51 yuan per dollar on Thursday before giving up most of its gains.
Oil prices extended Wednesday’s sharp gains as tensions in the Middle East intensified with Hamas vowing revenge for the killing of political leader Ismail Haniyeh in an Israeli strike in Iran. – Afp
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