Asia-Pacific markets were mixed on Tuesday following comments from Federal Reserve Chair Jerome Powell, who suggested that recent outsized interest rate cuts by the U.S. central bank should not be interpreted as a sign that future moves will be similarly aggressive. Powell, speaking in a Q&A session with Morgan Stanley economist Ellen Zentner, emphasized that the Federal Reserve is not in a rush to cut rates quickly. He stated that if the economy performs as expected, two more rate cuts, totaling 50 basis points, are likely this year.
Currently, the federal funds rate stands at 4.75% to 5%, with the additional 50 basis points expected to bring the rate down to 4.25% to 4.5% by the end of 2024.
In Asia, investors are keeping a close eye on Japan’s economic data, including the Bank of Japan’s (BOJ) third-quarter Tankan survey. The survey measures business optimism among large Japanese companies. Optimism among large manufacturers remained unchanged at +13, aligning with Reuters’ forecasts, while sentiment among large non-manufacturers improved slightly, rising to +34 from +33, surpassing expectations of +32. A positive figure in this survey indicates that optimists outnumber pessimists.
The BOJ also released its summary of opinions from its September 19-20 meeting, which took place following the U.S. Federal Reserve’s 50 basis points rate cut and ahead of Japan’s ruling Liberal Democratic Party election. The BOJ did not change its benchmark interest rate, with the summary revealing concerns from some board members about the timing of a potential rate hike. One board member deemed a rate hike “undesirable,” as it could signal a shift to a tightening cycle. Another member noted that Japan’s economy is not yet in a situation that would require immediate rate increases.
Additionally, Japan’s unemployment rate for August fell to 2.5%, down from 2.7% in July, and below the 2.6% forecast by economists polled by Reuters.
Market activity was affected by public holidays in some parts of Asia, with South Korea, Hong Kong, and mainland China markets closed. Mainland China will remain closed for the rest of the week due to the Golden Week holiday.
Japan’s Nikkei 225 rebounded by 1.73%, recovering from a 4.8% drop on Monday, while the Topix index rose by 1.43%. Australia’s S&P/ASX 200, on the other hand, slipped by 0.47%, retreating from an all-time high.
In the U.S., the S&P 500 hit a record close on Monday, gaining 0.42% to close at 5,762.48. The Dow Jones Industrial Average also achieved a new record, closing marginally higher at 42,330.15, while the Nasdaq Composite rose by 0.38%.
