SYDNEY: Stocks opened quietly in Asia on Monday, awaiting an eventful week likely to see the US Federal Reserve resume its easing cycle and potentially signal further cuts. The Bank of Canada is also anticipated to cut rates this week, while China’s central bank may adjust one of its market rates due to a sluggish economy. The Bank of Japan and Bank of England meetings are expected to result in no rate changes. Markets fully anticipate a 25 basis point Fed rate cut, bringing the funds rate to 4.0-4.25 per cent, with a low probability of a larger cut being factored into futures markets. The Fed’s “dot plot” projections for rates and guidance from Chair Jerome Powell on the extent and pace of future easing will be critical. Markets are already pricing in 125 basis points of cuts, so a less dovish stance could disappoint investors. Citi’s chief US economist, Andrew Hollenhorst, predicts further cuts, stating Chair Powell will likely guide toward “a series of further rate cuts,” citing increased downside risks to employment following recent soft jobs data. Hollenhorst expects the median “dots” to indicate 75 basis points of rate cuts this year and anticipates further cuts at upcoming meetings due to a shift in risk balance. The Fed rate cut is a key event driving the Asian markets’ behavior.
Background
President Trump criticized the central bank, calling Powell incompetent and detrimental to the housing market. Trading in some major currencies was slow due to a holiday in Japan, with the euro showing minimal reaction to Fitch’s downgrade of France. The euro remained steady at US$1.1727, near its recent high. The dollar strengthened slightly against the yen. The euro’s stability is linked to a positive outlook for EU rates, with the European Central Bank signaling confidence in its policy. Several ECB officials, including President Christine Lagarde, are scheduled to speak this week. EUROSTOXX 50 futures saw a slight increase, while FTSE and DAX futures were mostly unchanged. Nikkei futures were slightly below the cash close, having climbed over 4 per cent the previous week. South Korea’s market reached a record high, boosted by optimism about AI and domestic reforms. MSCI’s broadest index of Asia-Pacific shares outside Japan showed a slight decline.
Global Economic Indicators
Yields on 10-year Treasuries reached a five-month low last week as soft labor data strengthened the case for Fed easing. The three-month average of nonfarm payrolls slowed significantly, well below the 10-year trend, potentially leading to a rise in the unemployment rate. Upcoming economic data releases include retail sales, industrial output, housing starts, and weekly jobless claims. China is to release retail sales and industrial production data, with forecasts predicting minimal improvement. US and Chinese officials held talks in Madrid on strained trade relations. Trump mentioned ongoing negotiations on TikTok and efforts to pressure allies into imposing tariffs on Chinese imports due to Russian oil purchases. The threat of further sanctions on Russia provided some support to oil prices, but concerns about slowing US demand and increased OPEC production were more prominent factors. Brent crude oil prices remained relatively stable, while US crude prices edged higher. Gold prices decreased slightly, remaining near last week’s record high.
What’s next
The upcoming week will be significant for global markets, especially with the Federal Reserve’s decision on interest rates. Investors will closely monitor the Fed’s projections and Chair Powell’s guidance. Additional economic data releases will further influence market sentiment and direction. The ongoing trade discussions between the US and China, and any new developments regarding tariffs or sanctions, will also play a significant role. The effects of these factors on global markets, especially Asian markets, are expected to be keenly observed by financial experts and investors alike. The overall market response will depend heavily on the degree of dovishness shown by the Fed and the interpretation of the released economic data.
- Markets anticipate a Fed rate cut of 25 basis points.
- The Fed’s “dot plot” projections and Chair Powell’s guidance are key factors.
- Soft US labor data supports the case for aggressive Fed easing.
- Upcoming economic data includes retail sales, industrial output, and housing starts.
- US-China trade talks and potential sanctions on Russia are also impacting markets.
[Source](https://www.nst.com.my/business/corporate/2025/09/1275325/stocks-hesitate-asia-lot-riding-fed)
