Asian Markets Bounce Back on Fed Rate Cut Optimism
Asian stock markets experienced a significant upswing on Tuesday, driven by increasing expectations that the US Federal Reserve will implement interest rate cuts in December. The positive sentiment spread across the region, with technology stocks leading the charge in a robust recovery from last week's substantial losses.
Regional Market Performance Highlights
MSCI's broadest index of Asia-Pacific shares outside Japan climbed 1%, marking a notable rebound after suffering a sharp 4% decline the previous week. Despite this recovery, the index remains on track for a 3.8% monthly decline - its first negative month since March.
Japan's Nikkei index gained 0.8% as trading resumed following a holiday, effectively recovering from last week's 3.5% slump. The performance demonstrated renewed investor confidence in the Japanese market.
South Korea's markets showed particularly strong momentum, with the Kospi index surging an impressive 2.39% and the small-cap Kosdaq gaining 1.7%. This remarkable performance was largely driven by substantial gains in heavyweight chipmakers SK Hynix and Samsung Electronics, which jumped as much as 5% and 4% respectively.
Other major Asian markets also posted gains:
- Australia's ASX 200 maintained a slight positive position after trimming earlier gains
- Hong Kong's Hang Seng Index rose 1%
- The Hang Seng Tech Index jumped 1.74%
- Mainland China's CSI 300 added 0.53%
Fed Officials Fuel Rate Cut Expectations
The market optimism received significant reinforcement from comments by Federal Reserve officials. Fed Governor Christopher Waller indicated that recent data shows the US job market has weakened sufficiently to justify another quarter-point rate cut. This sentiment was echoed by San Francisco Fed President Mary Daly, who told the Wall Street Journal that she observed signs of deteriorating labor conditions.
Market expectations for a December rate cut have dramatically increased to 85%, a substantial jump from the 42% probability seen just one week earlier. This shift in sentiment has been the primary driver behind the current market rally.
Charlie Aitken, Investment Director at Regal Partners, characterized the broad market gains as "classic bull equity market behavior," noting that markets frequently bounce back strongly after experiencing "a short, sharp pullback."
Commodities and Currency Movements
In commodity markets, crude oil prices showed mixed signals. Brent crude slipped 0.3% to $63.20 per barrel, while US crude eased 0.2% to $58.71. These movements came despite a 1.3% gain in the previous session, which was driven by uncertainties surrounding a Russia-Ukraine peace deal that could potentially free up sanctioned Russian oil shipments.
Deutsche Bank issued a warning about a potential two-million-barrel-per-day surplus in 2026, projecting that bearish conditions might persist even into 2027. However, crude prices found some support from the growing expectations of US rate cuts, which could stimulate economic activity and boost oil demand.
Currency markets saw the US dollar soften slightly, while Treasury yields remained steady during Asian trading hours. The Japanese yen continued to struggle near last week's 10-month low, with political tensions between Tokyo and Beijing over Taiwan still simmering in the background.
The positive momentum in Asian markets followed a strong overnight performance on Wall Street, where the Nasdaq jumped 2.69% in its strongest daily showing since May 2024. Traders also drew confidence from recent talks between Presidents Donald Trump and Xi Jinping, viewed as a positive step in repairing relations following their tariff truce.
