Asian markets continued their disappointing start to the year on Thursday, tracking another loss on Wall Street after minutes from the Federal Reserve’s December meeting dampened hopes for an early interest rate cut.
The minutes, released on Wednesday, showed that Fed officials judged that it was appropriate to keep policy at a restrictive stance for some time until inflation is clearly moving down sustainably towards the 2% target. The Fed also acknowledged the risks and challenges facing the economy, but did not signal any imminent change in its policy stance.
The minutes contrasted with the recent market expectations that the Fed may cut rates in March or sooner, as inflation has eased from its peak in 2023 and growth has slowed down. The markets have been pricing in a 75% chance of a rate cut in March, and as much as 150 basis points of rate reductions by December 2024, according to the CME FedWatch tool.
However, the Fed’s minutes suggested that the central bank was not in a hurry to ease its policy, and that it would wait for more data and evidence before making any decision. The Fed also indicated that it would continue to reduce its balance sheet, which has been shrinking by $50 billion per month since October 2023.
The Fed’s minutes weighed on the US markets, which closed lower on Wednesday, snapping a five-day winning streak. The Dow Jones Industrial Average fell 0.18%, the S&P 500 dipped 0.2%, and the Nasdaq Composite dropped 0.59%.
The negative sentiment spilled over to the Asian markets, which opened lower on Thursday and extended their losses throughout the day. Japan’s Nikkei 225 index fell 1.29% to close at 33,015.37, while the Topix index declined 1.15% to 2,349.93. South Korea’s Kospi index slid 0.77% to finish at 2,492.28, while the Kosdaq index shed 0.86% to end at 807.65.
Hong Kong’s Hang Seng index dropped 1.08% to close at 16,843.53, while China’s Shanghai Composite index slipped 0.67% to finish at 2,954.18. Australia’s S&P/ASX 200 index edged down 0.08% to close at 7,066.30, while New Zealand’s NZX 50 index rose 0.26% to end at 11,911.97.
The Asian markets were also affected by other factors, such as the ongoing trade tensions between the US and China, the Brexit uncertainty, and the geopolitical risks in the Middle East and North Korea. The oil prices also declined, as the US crude inventories rose more than expected, and the demand outlook remained weak. The Brent crude oil futures fell 1.61% to $53.14 per barrel, while the WTI crude oil futures dropped 2.5% to $48.73 per barrel.
The Asian currencies also weakened against the US dollar, as the Fed’s minutes boosted the greenback’s appeal and yield advantage. The dollar index, which measures the value of the dollar against a basket of six other currencies, rose 0.34% to 100.03. The dollar gained 0.41% against the Japanese yen, 0.24% against the Chinese yuan, 0.23% against the Australian dollar, and 0.13% against the South Korean won.
The Asian markets are likely to remain under pressure in the near term, as the investors await more clues and guidance from the Fed and other central banks, as well as the economic data and the corporate earnings. The Fed’s next policy meeting is scheduled for January 29-30, while the Bank of Japan, the European Central Bank, and the Bank of England will also hold their meetings later this month. The US will also release its fourth-quarter GDP data and its inflation and employment reports in the coming weeks. The earnings season will also kick off in the US and other regions, with the expectations of a slowdown in profit growth.
