On Thursday, Asian benchmarks surged as U.S. stocks achieved record highs, propelled by the Federal Reserve’s indication of anticipated interest rate cuts later this year.
Japan’s benchmark Nikkei 225 soared 2.0% to close at a historic peak of 40,815.66, buoyed by the government’s report of nearly 8% growth in exports for February compared to the previous year, marking the third consecutive month of increase.
The increase in shipments of cars and electrical machinery contributed to a notable reduction in the trade deficit, which amounted to approximately half of its value from a year earlier, standing at 379 billion yen ($2.5 billion).
In parallel, Hong Kong’s benchmark surged 2% to reach 16,879.68, while the Shanghai Composite experienced a marginal decline of less than 0.1%, settling at 3,077.11. This dip followed the Chinese government’s unveiling of new measures aimed at bolstering the economy.
Sydney’s S&P/ASX 200 climbed 1.1% to reach 7,782.00, while South Korea’s Kospi surged 2.4% to 2,754.86.
Meanwhile, on Wednesday, the S&P 500 soared 0.9% to hit 5,224.62, marking an all-time high for the second consecutive day. Notably, it has already seen a 9.5% increase since the beginning of the year, surpassing the average yearly gain observed over the past two decades.
The Dow Jones Industrial Average surged 1% to 39,512.13, while the Nasdaq composite rallied 1.3% higher to 16,369.41, with both indices reaching new record highs.
Wall Street’s apprehension at the start of the day somewhat dissipated following the release of a survey by the Federal Reserve of its policymakers. The survey revealed that the median still anticipates the central bank to implement three cuts to interest rates in 2024, consistent with their projections from three months prior. The expectation of relief from such cuts has been a significant factor driving U.S. stock prices to record levels.
Concerns on Wall Street arose from the possibility of the Fed reducing the projected number of interest rate cuts due to persistent reports indicating higher-than-anticipated inflation. In response to inflationary pressures, the Fed has maintained its main interest rate at its highest level since 2001 in an effort to mitigate inflationary pressures. However, elevated interest rates can dampen economic activity by increasing borrowing costs and negatively impacting investment prices.
Fed Chair Jerome Powell acknowledged the recent string of worse-than-expected reports on inflation over the past two months. However, he emphasized that these reports have not altered the overall narrative of inflation gradually declining toward the Fed’s target of 2%, albeit on an occasionally turbulent path. Powell reiterated the Fed’s stance that its next move is likely to be a rate cut sometime this year, but emphasized the need for further confirmation that inflation is indeed trending toward the target.
With limited margin for error, Powell highlighted the delicate balance the Fed faces. Acting prematurely with rate cuts could risk reigniting inflation, while delaying action could result in significant job losses and a recession. Powell expressed uncertainty about whether the recent inflation data reflects a temporary hiccup or a more significant trend, underscoring the need for cautious assessment. Despite the inflationary concerns, Powell noted the strength of the economy and labor market, which provides the Fed with the flexibility to approach the situation with care.
Fed officials revised their forecasts for the U.S. economy’s growth upwards for this year, suggesting potential maintenance of higher benchmark rates in 2025 and 2026 compared to previous expectations.
In the bond market, Treasury yields showed a mixed response. Initially, the two-year Treasury yield, closely aligned with Fed expectations, surged before retracting the gain swiftly. Eventually, it settled at 4.61%, a decline from 4.69% late Tuesday, as traders speculated on potential rate cuts by the Federal Reserve beginning in June.
Traders had relinquished earlier expectations of the Fed initiating cuts in March. Concerns lingered that delaying rate adjustments until mid-summer might be viewed as politically motivated, particularly with U.S. elections scheduled for November.
The 10-year Treasury yield, reflecting long-term economic prospects and inflation, initially declined post-Fed announcement but later rebounded. It settled at 4.28%, a slight drop from 4.30% late Tuesday.
Elsewhere, benchmark U.S. crude climbed 41 cents to reach $81.68 a barrel, while Brent crude, the global benchmark, rose by 50 cents to $86.45 a barrel.
The U.S. dollar weakened slightly to 150.96 Japanese yen from 151.26 yen, while the euro strengthened to $1.0935 from $1.0925.
