Asian Stocks Drift, Dollar Strengthens as Traders Consider US Rates – Reuters

By Ankur Banerjee

SINGAPORE – Asian stocks pulled back from two-and-a-half-year highs on Tuesday, with the dollar strengthening after comments from Federal Reserve Chair Jerome Powell dampened expectations for significant interest rate cuts. Tensions in the Middle East also kept risk sentiment in check.

Oil prices remained stable, while gold hovered just below a record high reached last week, as investors awaited U.S. labor data for more insight on the pace of forthcoming U.S. rate cuts.

The MSCI index of Asia-Pacific shares, excluding Japan, was down 0.32% at 618.87, retreating from a recent high of 627.66. Despite this pullback, the index has gained 17% this year.

The Japanese yen saw a slight rebound after a nearly 2% increase, following a 4.8% decline on Monday, influenced by perceived monetary policy hawk Shigeru Ishiba’s victory in a contest to become prime minister.

European stocks were poised for a higher opening, with Eurostoxx 50 futures up by 0.25%, German stocks rising 0.24%, and French shares increasing by 0.28%.

Attention during European trading will focus on inflation data from the eurozone, which could influence the European Central Bank’s decision to cut interest rates later in the month. This follows recent comments from ECB President Christine Lagarde, who expressed confidence that inflation would decrease to the target of 2%, hinting at a potential rate cut.

With the financial markets in mainland China closed for the remainder of the week, the recent rally that energized Asian markets may be losing momentum. Hong Kong’s market was also closed on Tuesday.

Economic stimulus measures in China have led to a surge in previously battered stocks, with the blue-chip CSI300 index rising 25% since the beginning of last week, enticing global investors to consider investments in China again.

Matt Simpson, senior market analyst at City Index, stated, "I think we’re in for some choppy trading until U.S. data comes in," adding that trading volumes were thin due to the closure of Chinese markets.

Investors are also monitoring escalating geopolitical tensions amid reports of Israel’s ground invasion of Lebanon.

NO HURRY

Market participants are focused on the pace of rate cuts from the Federal Reserve, which initiated an easing cycle last month with a 50 basis-point cut. Powell indicated that the Fed is likely to proceed with smaller cuts in the future, stating that the committee is not in a hurry to reduce rates quickly.

This shift in expectations led traders to price in a 38% chance of a 50 basis-point cut next month, down from 53% on Friday. Expectations are leaning towards 70 basis points of easing this year.

The changing outlook around rate cuts has strengthened the dollar, which was slightly higher at 100.77. The euro remained steady at $1.1142, while the yen weakened by nearly 0.5% to 144.34 per dollar.

With the Fed closely monitoring the labor market, Tuesday’s reports on job openings for August and the ISM manufacturing survey for September will be crucial for rate expectations and the dollar’s performance, according to economist Kristina Clifton.

"The dollar may face pressure if this week’s data indicates that the U.S. labor market remains stable," she noted.

In commodities, oil prices remained steady as concerns over potential disruptions from the Middle East conflict were offset by expectations of increased supply amid sluggish global demand growth.

Brent futures rose 0.11% to $71.78 per barrel, while U.S. West Texas Intermediate crude futures increased by 0.07% to $68.22 per barrel.

Gold prices climbed to $2,643.21 per ounce, just below the record high of $2,685.42 set last Thursday, marking a notable 13% rise from July to September, reflecting its best quarterly performance in over four years.