Asian stocks struggle for direction as Fed downplays early rate cuts

Investing.com-- Asian stocks were a mixed bag on Thursday, taking a weak lead-in from Wall Street after the Federal Reserve shot down expectations for interest rate cuts coming as soon as March 2024.

Japan’s Nikkei 225 and Australia’s ASX 200 indexes were the worst performers for the day, losing between 0.8% and 1% as dampened risk appetite saw traders lock-in recent profits. The Nikkei pulled away from a 34-year high, while the ASX 200 lost sight of a record peak.

Weakness in Japanese stocks was also driven by hawkish signals from the Bank of Japan. A recent summary of opinions from the BOJ showed that policymakers discussed the possibility of a near-term exit from the bank’s ultra-dovish policy. 

Most regional markets took a weak lead-in from Wall Street after Fed Chair Jerome Powell said the bank was in no hurry to begin cutting interest rates, especially by March 2024. 

But Powell noted that the U.S. economy remained resilient, and stopped just shy of declaring victory over inflation. This spurred bets that the Fed’s rate cuts will only be delayed by a few months, with markets now positioning for a May rate cut. 

Some analysts also said that the Fed could potentially cut rates by a bigger margin later this year to make up for a delay in the rate cuts. 

The Fed's plans to cut interest rates have been a key point of focus for Asian stock markets, given that they are largely expected to affect the scale of capital flows to the region over the coming months.

Broader Asian markets were a mixed bag on Thursday. South Korea’s KOSPI added 1.2%, while futures for India’s Nifty 50 index pointed to a muted open. 

Chinese stocks rebound past weak economic data 

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rose 0.9% and 0.4%, respectively, rebounding from near multi-year lows despite persistent signs of economic weakness in the country. 

Hong Kong’s Hang Seng was the best performer in Asia, rising nearly 2% after logging steep losses earlier this week.

A private survey showed on Thursday that China’s manufacturing sector grew as expected in January. But the pace of growth remained weak, with Thursday’s reading also coming just a day after an official survey showed persistent weakness in the sector.

Separate data showed that China’s new home sales plummeted in January, signaling little relief for a deepening property market crisis in the country. 

Recent monetary stimulus measures from the Chinese government provided a limited boost to stocks, with reports indicating that local, government-backed institutions were the main backers of a brief rally earlier in January. But local stocks largely reversed this rally earlier this week.