Asian equity markets saw a positive surge on Monday, bolstered by US Federal Reserve Chair Jerome Powell’s remarks that signaled a potential shift towards cutting interest rates as early as next month. Powell’s comments, delivered at the highly anticipated Jackson Hole symposium, hinted at a possible end to the Fed’s tightening cycle, sparking optimism among investors.
Powell stated, “The time has come for policy to adjust,” reinforcing the belief that the Fed may soon reduce interest rates from their two-decade highs. He expressed growing confidence that inflation is on a sustainable path back to the central bank’s two percent target, a sentiment that has driven expectations of a rate cut in the near future.
The US market responded positively to Powell’s speech, with all three major indexes in New York closing more than one percent higher on Friday. This momentum carried into Asian markets on Monday, with major indexes in Hong Kong, Mumbai, Shanghai, Sydney, Singapore, Taipei, Bangkok, and Wellington all recording gains. However, Tokyo and Seoul bucked the trend, closing with slight losses.
In Tokyo, the Nikkei 225 index dropped 0.7 percent to close at 38,110.22, weighed down by a strengthening yen, which appreciated against the dollar following Powell’s comments. The yen’s rise was further supported by Bank of Japan Governor Kazuo Ueda’s indication that the central bank might consider hiking rates again if economic conditions warrant it.
Meanwhile, markets in Paris and Frankfurt opened slightly lower, and London remained closed for a public holiday.
Market analysts have noted that the absence of the usual cautionary language in Powell’s speech, such as references to “gradualism,” fueled investor enthusiasm. “The absence of caveats is likely what excited markets,” said Tapas Strickland of National Australia Bank. Independent analyst Stephen Innes echoed this sentiment, noting that investors are currently in a “dream scenario,” anticipating rate cuts without the looming threat of a recession.
However, Innes also cautioned that the market’s next move will heavily depend on upcoming US economic data, including jobs, inflation, and personal income figures. “The stakes? They couldn’t be higher,” he warned.
In addition to Powell’s remarks, traders were also closely monitoring developments in the Middle East, where a recent flare-up in hostilities between Israel and Hezbollah has raised concerns about a potential escalation. Israel launched airstrikes into Lebanon on Sunday, targeting Hezbollah rocket launchers, while the Lebanese group responded with a drone and rocket barrage. The situation has pushed oil prices higher, with both West Texas Intermediate and Brent crude extending gains from Friday.
West Texas Intermediate rose 0.8 percent to $75.46 per barrel, while Brent North Sea crude climbed 0.7 percent to $78.73 per barrel.
Key Market Figures:
- Tokyo – Nikkei 225: DOWN 0.7 percent at 38,110.22 (close)
- Hong Kong – Hang Seng Index: UP 1.1 percent at 17,800.86 (close)
- Shanghai – Composite: FLAT at 2,855.52 (close)
- London – FTSE 100: Closed for a holiday
- Dollar/yen: DOWN at 143.76 yen from 144.34 yen on Friday
- Euro/dollar: DOWN at $1.1186 from $1.1193
- Pound/dollar: DOWN at $1.3206 from $1.3209
- Euro/pound: UP at 84.67 pence from 84.70 pence
- West Texas Intermediate: UP 0.8 percent at $75.46 per barrel
- Brent North Sea Crude: UP 0.7 percent at $78.73 per barrel
- New York – Dow: UP 1.1 percent at 41,175.08 (close)
As global markets digest the potential shift in US monetary policy and keep a close eye on geopolitical developments, the coming weeks are expected to be crucial in determining the market’s trajectory.
