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Asian Markets Join US Rally as Confidence in Interest Rates Grows

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“Market confidence in the US economy’s interest rate stability is fueling an extension of the rally in Asian markets, showcasing the global impact of American financial policy.”

Asian investors on Tuesday built on a Wall Street rally as analysts said a strong US Treasury auction indicated confidence on trading floors that the Federal Reserve is finished hiking interest rates.

Expectations that financial conditions will become easier in the new year as inflation comes down have fanned a rush back into risk assets in recent weeks and pushed the dollar down against its peers.

All three main indexes in New York extended their gains Monday, with the Nasdaq hitting a 22-month high thanks to an advance in tech giants including Amazon, Microsoft and Nvidia. The gains were boosted by the successful sale of 20-year US Treasuries that sent yields on other notes lower. Talk is now growing that the Fed could cut borrowing costs as early as March, much earlier than previous bets on the second half of 2024.

Hong Kong led the way in Asia, putting on more than one percent, having jumped almost two percent Monday. Market heavyweight Alibaba jumped more than three percent to extend its rebound after diving 10 percent Friday on news it had canceled the spinoff of its cloud computing arm. Shanghai, Sydney, Seoul, Taipei, and Manila were also up, though Tokyo struggled owing to a strengthening yen.

The yen has bounced after coming within a whisker of the 32-year low 151.95 to the dollar in October as US rate expectations ease and speculation swirls that the Bank of Japan is thinking of shifting from its ultra-loose policies. The greenback was also down against the euro and pound.

Still, while traders are getting comfortable with the idea of a rate cut in the new year, Fed officials remain cautious.

In the latest remarks, Richmond Fed president Thomas Barkin warned the bank still had plenty of work to do to slay inflation, which at 3.2 percent is still well above target. He added that with “inflation being stubborn”, he favored keeping rates elevated for an extended period, but how long would depend on the incoming data.

Traders are now awaiting the release of minutes from the Fed’s November policy meeting, when they held rates, while comments from officials will also be pored over ahead of their last gathering of the year on December 12-13.

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