(Bloomberg) — Asian stocks slid on Thursday after the Federal Reserve trimmed expectations for interest-rate cuts next year. The yen dropped as the Bank of Japan refrained from raising borrowing costs.
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Equity benchmarks in Japan, Australia, South Korea and China declined, helping drag a gauge of regional equities down by as much as 1.5%. US stock futures edged higher after the S&P 500 suffered its biggest loss since 2001 for a Fed decision day.
The yen weakened past the key level of 155 versus the dollar following the BOJ decision, with traders awaiting clues about the rate outlook from Governor Kazuo’s news conference later Thursday. The prospect of fewer US rate cuts supported the dollar and sent Asian currencies tumbling, with the South Korean won dropping to its weakest level in more than 15 years.
The moves come after the Fed lowered rates by 25 basis points on Wednesday as expected, with the median policymaker now seeing just a half-percentage point of reductions next year, half of what was expected in September.
“The yen’s drop suggests traders seized on a starker contrast between a BOJ keeping its key rate in very stimulative territory and a Federal Reserve now signaling a more gradual, shallower path of rate cuts,” said Taro Kimura, senior economist for Japan at Bloomberg Economics. “Looking ahead, our view is the BOJ won’t wait much longer to pare stimulus further, given signs that inflationary momentum continues to build.’
Treasury yields were little changed after rising across the curve in the prior session. Australian yields jumped Thursday, while those for New Zealand edged higher after the country’s economy fell into recession.
The last time the S&P 500 saw losses of the magnitude on Fed’s decision day was on Sept. 17, 2001, when the index fell nearly 5%. It dropped 12% on March 16, 2020, a day after the Fed’s emergency weekend meeting during the pandemic.
Fed Chair Jerome Powell said the central bank would be more cautious as it considers further adjustments to the policy rate, noting the Fed is committed to reaching its 2% inflation target. “We need to see progress on inflation,” he said. “We moved quickly to get to here but moving forward we are moving slower.”
Fed Outlook
Whitney Watson of Goldman Sachs Asset Management expects the Fed to skip a rate cut in January before resuming on its easing path in March.
“While the Fed opted to round out the year with a third consecutive cut, its New Year’s resolution appears to be for a more gradual pace of easing,” said Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions at the firm.
Back in Asia, BOJ Governor Kazuo Ueda’s policy board left its benchmark rate at around 0.25%, according to a statement Thursday, an outcome expected by more than half of economists surveyed by Bloomberg.
Over in China, authorities ramped up support for the currency via its daily reference rate after the Fed’s caution over future rate cuts sent the offshore yuan to a fresh one-year low.
Contemporary Amperex Technology Co., the world’s top electric-vehicle battery maker, is considering a second listing in Hong Kong that could raise at least $5 billion, according to people familiar with the matter. Shares of Asian memory chipmakers and their suppliers fell after Micron Technology offered disappointing revenue forecast.
In the US, President-elect Donald Trump said he opposed a proposed funding bill and threatened to oust fellow Republicans if they accepted legislation that didn’t include his demands, increasing the likelihood of a government shutdown later this week. House Majority Leader Steve Scalise said the stopgap funding measure released Tuesday was dead.
The Fed’s Wednesday cut precedes a busy run of central bank announcements from around the world. Rate decisions are expected Thursday in the Philippines, Taiwan, the UK, Norway, Sweden and Mexico. China’s one-year Medium-Term Lending Facility rate may be announced at any time through Dec. 24.
In commodities, oil fell as expectations for fewer Fed rate cuts boosted the dollar. Gold rose after a sharp decline Wednesday and Bitcoin sank below $100,000 as part of a wider retreat in speculative investments amid the US policy outlook.
Key events this week:
Japan rate decision, Thursday
UK BOE rate decision
US revised GDP, Thursday
Japan CPI, Friday
China loan prime rates, Friday
Eurozone consumer confidence, Friday
US personal income, spending & PCE inflation, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.2% as of 11:26 a.m. Tokyo time
Nikkei 225 futures (OSE) fell 1.3%
Japan’s Topix fell 0.5%
Australia’s S&P/ASX 200 fell 1.8%
Hong Kong’s Hang Seng fell 1%
The Shanghai Composite fell 0.7%
Euro Stoxx 50 futures fell 1.4%
Nasdaq 100 futures were little changed
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.3% to $1.0379
The Japanese yen rose 0.2% to 154.50 per dollar
The offshore yuan fell 0.2% to 7.3096 per dollar
The Australian dollar rose 0.2% to $0.6228
Cryptocurrencies
Bitcoin fell 1.7% to $99,196.29
Ether fell 3.1% to $3,574.97
Bonds
Commodities
West Texas Intermediate crude fell 0.6% to $70.19 a barrel
Spot gold rose 1% to $2,610.81 an ounce
This story was produced with the assistance of Bloomberg Automation.
