Asian markets mixed as Fed officials push back on rate cut bets

Hong Kong – Asian markets were mixed Tuesday after Federal Reserve officials looked to dampen expectations for a series of interest rate cuts next year, while the yen edged up ahead of a closely watched Bank of Japan policy decision later in the day.

Wall Street extended its seemingly relentless advance, fuelled by the US central bank’s dovish pivot last week, but investors in Asia were a little more reticent as they assess the economic outlook for the region.

Since the Fed released its “dot plot” forecast for rates, officials have in recent days lined up to temper market predictions that it will slash borrowing costs by up to 1.5 percentage points through 2024.

In a Wall Street Journal interview published Monday, San Francisco Fed chief Mary Daly said she thought policy was in a “good place” to bring inflation down to the bank’s two percent target.

Her Cleveland counterpart Loretta Mester told the Financial Times in another interview published Monday that traders had run ahead of themselves.  

“They jumped to the end part (of the Fed’s post-meeting statement), which is ‘We’re going to normalise quickly’, and I don’t see that,” she said. 

And Chicago chief Austan Goolsbee said he was confused by the strong market reaction. 

The comments come after New York Fed chief John Williams told CNBC that “we aren’t really talking about rate cuts”, adding it was “just premature to be even thinking about” a March reduction, which some experts have suggested.

Stephen Innes at SPI Asset Management said: “It is essential to recognise that the Fed will likely demand sustained improvement in inflation metrics over several months before implementing any rate cuts.

“This consideration supports the notion that the actual pivot in rates might not occur as rapidly as currently anticipated by the market.”

In early trade, Hong Kong, Shanghai, Singapore, Seoul and Taipei fell.

But stocks were up in Tokyo, where Nippon Steel lost more than four percent after saying Monday it would buy US Steel for $14.1 billion, creating the world’s second-largest steel company.

Sydney, Wellington, Manila and Jakarta also edged up.

Eyes are now on the Bank of Japan as it concludes a two-day meeting.

Most observers expect officials to stand pat on interest rates, though speculation has been swirling that it is close to shifting away from its long-running, ultra-loose monetary policy as inflation picks up.

The bank will most likely “take a slow course”, Belita Ong, of Dalton Investments, told Bloomberg News.

“It’s taken all this time and this amount of depreciation and declining interest rates to get the economy going again and to get some inflation as opposed to disinflation back in the economy.

“So it’s hard for me to believe that the BoJ would do something abrupt.”

Economists have forecast the bank to make an announcement in April, Bloomberg reported.

Oil prices edged higher, a day after piling on more than one percent in reaction to a number of firms saying they would avoid the Red Sea following attacks on several cargo ships by Yemen’s Iran-backed Huthi rebels.

The rebels said Monday they had fired on two “Israeli-linked” vessels in a bid to pressure the country over its war in the Gaza Strip.

Five of the world’s six largest shipping companies have announced they will not send ships through the Red Sea due to the threats. 

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 0.1 percent at 32,799.78 (break)

Hong Kong – Hang Seng Index: DOWN 0.9 percent at 16,481.73

Shanghai – Composite: DOWN 0.1 percent at 2,927.88

Dollar/yen: DOWN at 142.61 yen from 142.73 yen on Monday

Euro/dollar: DOWN at $1.0916 from $1.0919

Pound/dollar: UP at $1.2653 from $1.2650

Euro/pound: DOWN at 86.29 pence from 86.31 pence

West Texas Intermediate: UP 0.1 percent at $72.52 per barrel 

Brent North Sea crude: UP 0.3 percent at $78.21 per barrel 

New York – Dow: FLAT at 37,306.02 points (close)

London – FTSE 100: UP 0.5 percent at 7,614.48 (close)