Asian stocks rally on Fed rate cut cheer, China caution persists


Most Asian stocks rose sharply on Thursday as the Federal Reserve said it was done raising interest rates and will consider cuts in 2024, although persistent concerns over an economic slowdown in China kept gains in check.

Australia’s ASX 200 was among the top performers for the day, up 1.6% on strength in banks and commodity stocks.

The ASX was also boosted by data showing continued resilience in Australia’s labor force, although the unemployment rate also rose slightly in November.

South Korea’s KOSPI surged 1.1%, as technology stocks rose tracking an overnight slump in U.S. Treasury yields. This trade helped Hong Kong’s Hang Seng index add 0.9% despite weakness in mainland stocks.

Broader Asian markets also rose after the Fed signaled an end to its rate hike cycle, and that it could cut rates by a bigger-than-expected margin in 2024. Traders were now once again pricing a greater chance that the Fed could trim rates by as soon as March 2024.

A strong overnight close on Wall Street also provided positive cues to Asian markets, with the Dow Jones Industrial Average closing at a record high.

The prospect of lower interest rates bodes well for Asian markets, given that it results in more foreign capital flows into the region. Risk-heavy assets, particularly stocks, benefit from a low rate environment.

Futures for India’s Nifty 50 index pointed to a positive open, with the index likely to scale new peaks after hitting a series of record record highs over the past two weeks. Optimism over the Indian economy was a key driver of this rally.

On the other hand, Japan’s Nikkei 225 index fell 0.6%, seeing some profit taking after three straight days of gains. While tech stocks clocked strong gains, they were offset by losses in automobile and industrial stocks, especially amid persistent concerns over a slowdown in China, which is a major export market for Japan.

Chinese stocks lag amid caution before more economic cues

China’s bluechip Shanghai Shenzhen CSI 300 hovered near five-year lows, while the Shanghai Composite also traded sideways.

Sentiment towards China remained largely on edge after data earlier this week showed the country slipping further into deflationary territory in November.

Focus is now on industrial production and retail sales data for November, due this Friday, for more cues on Asia’s biggest economy.

Local markets took some support from local media reports stating that Beijing intended to loosen regulations for its National Social Security fund, allowing it to invest in pension products and certain options trade.

But while the move is likely to boost capital markets, its impact on the economy will be limited. Chinese stock indexes were among the worst performers in Asia this year, hit by persistent concerns over the economy.

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