Asian stocks track US gains on rising Fed cut bets

An electronic ticker at the Tokyo Stock Exchange (TSE) in Tokyo, Japan. (Courtesy: Bloomberg)

Asian stocks advanced at Thursday's open, tracking gains in US peers after more evidence of a slowing job market boosted the case for the Federal Reserve to lower interest rates next week.

MSCI Inc.’s gauge of Asian equities rose 0.4%, with Japanese shares outperforming in the region. Bitcoin hovered near $93,500 after a two-day rally. US stock futures were steady after the S&P 500 climbed 0.3% overnight.

Data on Wednesday showed US companies shed payrolls in November by the most since early 2023, reinforcing concerns about a more pronounced labor market weakening. Swaps pricing indicated rising expectations for a December cut Wednesday, with traders assigning more than a 90% chance to a 25-basis-point reduction.

A gauge of the dollar was little changed early in Asia after dropping 0.4% in the previous session, when US treasuries rose across the curve, pushing two-year yields down to around 3.48%.

In Asia today, investors will be watching Japan’s auction of 30-year bonds. Meanwhile, China set its daily reference rate for the yuan at a level that was significantly weaker than estimates, suggesting the central bank is aiming to limit gains in the managed currency which is inching close to a keenly watched level of 7 per dollar. The dollar’s drop overnight also puts focus on weaker Asian currencies like the Indian rupee, which slipped past the key psychological level of 90 per dollar on Wednesday.

“The relief over the US November ADP employment data and growing hopes for the Fed’s rate cut next week seem to be contributing to a better sentiment for APAC equity markets this morning,” said Homin Lee, a senior macro strategist at Lombard Odier Singapore. For Japan, “if there is another calm auction result, the market could start pushing for the narrative of a flatter yield curve and demand recovery for Japanese duration before the Fed considers a rate cut,” he said.

Trade and geopolitics are also on investors’ radar. Commerce Secretary Howard Lutnick said that the US is expecting a large investment pledge from Taiwan in trade talks. Separately, Nvidia Corp.’s Jensen Huang said he’s unsure whether China would accept the firm’s H200 artificial intelligence chips should the US relax restrictions on sales of the processors, following a meeting Wednesday with President Donald Trump.

Risk-On Mood

Notably, gains for American benchmarks came despite weakness in most megacaps. Shares in Salesforce Inc. rose in post-market trading after the company delivered an outlook for revenue in the current period that topped analysts’ estimates.

While moves in Asian equities this week have been small, the regional MSCI gauge is on course for a third straight session of gains. It jumped 2.7% last week, the most since early October.

“It’s broadly a risk-on mood, driven by US rate cut expectations,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management in Tokyo. Falling rates could allow investments into the artificial intelligence sector to continue, he added.

Elsewhere, Australia’s bond yields rose to the highest level this year amid growing speculation the central bank will switch back to raising interest rates to bring down inflation.

In commodities, silver traded near an all-time high on the reinforced bets of a Fed cut, while gold also edged higher. Oil held a modest gain as investors weighed the outlook for a ceasefire in Ukraine and the fallout from tensions between the US and Venezuela.

Despite the apparent confidence among investors, US policymakers have been torn as to whether they’ll cut rates for a third straight meeting as they attempt to balance the slowdown in the job market with still-elevated inflation.

Before their final policy meeting of the year, Fed officials will get a dated reading on their preferred inflation gauge. On Friday, the September income and spending report is due to be released — long delayed because of the government shutdown.

The figures will include the personal consumption expenditures price index and a core measure that excludes food and energy. Economists project a third straight 0.2% increase in the core index. That would keep the year-over-year figure hovering just below 3%, a sign that inflationary pressures are stable, yet sticky.

Separately, US services activity expanded at a slightly faster pace, while a measure of prices paid dropped to a seven-month low.

“Right now, the data argues for additional Fed funds rate cuts. US labor demand is weak, consumer spending is showing early signs of cracking, and upside risks to inflation are fading,” said Elias Haddad at Brown Brothers Harriman & Co.