Fed Takes Bold Action as Markets Fluctuate – Reuters

By Jamie McGeever

As we look ahead to the day in Asian markets, the recent actions of the Federal Reserve are at the forefront. Some U.S. policy analysts and former officials encouraged Fed Chair Jerome Powell and his team to "go big, and go bold," and that is precisely what they did.

On Wednesday, the Federal Reserve announced a half-percentage point interest rate cut, signaling its commitment to protect the labor market and avert a recession. Initial reactions from investors were positive, with major U.S. indices, including the Dow, reaching record highs. The Russell 2000 small-cap index surged nearly 2%, while the dollar declined against other currencies.

However, the optimism was short-lived as stocks and gold lost their gains, and the dollar rebounded from a 14-month low. The bond market’s response may offer some clarity, as Treasury yields climbed, particularly at the long end, possibly due to inflation concerns or the Fed’s slight upward adjustment of its long-term forecast for the fed funds rate.

These developments create a complex environment for Asian markets as Thursday approaches. In an unexpected move, Bank Indonesia cut its interest rate by a quarter-point on Wednesday, a decision only predicted by three out of 33 economists surveyed. Surprisingly, the rupiah remained stable, holding near its strongest levels against the dollar in about a year.

With the Fed taking its initial step towards easing, other central banks in Asia may feel encouraged to loosen their policies. However, Taiwan is expected to maintain its policy interest rate on Thursday, as indicated by all 32 economists surveyed in a recent poll. The central bank previously set the benchmark discount rate at 2% in June, having increased it from 1.875% earlier in the year due to ongoing inflation concerns.

Asian investors are also focusing on New Zealand’s GDP data, unemployment figures from Australia and Hong Kong, and trade statistics from Malaysia. Additionally, traders may be positioning themselves ahead of vital inflation figures from Japan and rate decisions from the Bank of Japan and the People’s Bank of China on Friday.

China is grappling with the persistent threat of deflation, particularly in its property sector. Historical patterns suggest that recovering from previous housing market crashes can take a decade, raising concerns about whether prices will return to their pre-bubble levels.

Key developments to watch for in Asian markets on Thursday include:

• Taiwan’s interest rate decision
• New Zealand’s GDP data for the second quarter
• Australia’s unemployment figures for August