Asian Markets Lifted as Fed Hints at Rate Cuts, But Tokyo and Seoul Slip

Asian equity markets mostly rose on Monday, along with the yen, following comments from U.S. Federal Reserve Chairman Jerome Powell that “the time has come” to begin cutting interest rates.

This statement set the stage for potential rate reductions as early as next month.

Powell’s remarks provided a boost to investors, helping to alleviate the market turmoil that plagued August. However, analysts cautioned that unexpected economic data could disrupt the current optimism.

His comments propelled all three major indexes in New York to gains of more than one percent.

Following Wall Street’s lead, most Asian markets saw gains on Monday, with Hong Kong, Mumbai, Shanghai, Sydney, Singapore, Taipei, Bangkok, and Wellington all ending the day in positive territory.

However, Tokyo and Seoul saw declines.

In Europe, Paris and Frankfurt opened slightly lower, while London was closed for a holiday.

Investors were also keeping a close watch on developments in the Middle East after renewed hostilities between Israel and Hezbollah, which raised concerns of escalating conflict in the region.

In a highly anticipated speech at a central bankers’ symposium in Jackson Hole, Wyoming, Powell stated, “The time has come for policy to adjust,” signaling a clear intention to lower interest rates.

He noted that the timing and extent of rate cuts would depend on incoming data, the evolving economic outlook, and the balance of risks.

“My confidence has grown that inflation is on a sustainable path back to two percent,” Powell said, referencing the central bank’s target.

Equities had already been rising on the expectation that the Fed would begin cutting rates from their two-decade highs next month.

The main debate now centers on the size of the initial cut and the number of subsequent reductions. Traders are currently betting on about one percentage point in rate cuts by the end of the year.

National Australia Bank’s Tapas Strickland observed, “Importantly, there was a notable absence of caveats such as ‘gradual/gradualism’ as used by other Fed officials. The absence of caveats is likely what excited markets.”

Independent analyst Stephen Innes added, “Yep, the Fed is ready to start slicing those interest rates. With the labor market cooling off and inflation finally inching closer to that elusive two percent target, Powell served up exactly what Wall Street had been drooling over.

Right now, investors are in dreamland—having their cake, eating it too.”

However, Innes warned that the market’s next significant move would hinge on upcoming U.S. economic data, particularly whether it indicates a gentle slowdown or the first signs of a recession.

Attention will now shift to the release of key economic indicators, including U.S. jobs, inflation, and personal income data.

Tokyo stocks were pressured by a stronger yen, which rallied on Friday following Powell’s comments and indications from Bank of Japan Governor Kazuo Ueda that rates could rise again if inflation and the economy perform as expected.

The yen was trading at less than 144 per dollar in early trade.

Traders were also on edge over the situation in the Middle East after Israel launched air strikes into Lebanon on Sunday, claiming to have destroyed “thousands” of Hezbollah rocket launchers and thwarted a major attack.

Hezbollah responded with a drone and rocket barrage.

The escalation in hostilities pushed oil prices higher, though gains were limited by hopes that the crisis would not escalate into a full-scale conflict involving other regional powers, including Iran. Hezbollah stated that its operation “was completed and accomplished.”

Both major oil contracts rose on Monday, extending Friday’s rally of more than two percent, which was driven by Powell’s comments on interest rates.

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