Asia markets dip as Fed dampens rate cut hopes

February 01, 2024 (MLN): Most Asian equities fell Thursday, tracking a sell-off on Wall Street after the Federal Reserve poured cold water on hopes for a March interest rate cut, as APP reported.

The downbeat sentiment was compounded by disappointing earnings from US titans Microsoft and Alphabet, which pummelled the tech sector, while investors were also eyeing developments in the Evergrande crisis after its liquidation order by a Hong Kong court this week.

After a much-anticipated meeting, Fed policymakers acknowledged that inflation was going in the right direction and expected to begin lowering borrowing costs this year from their two-decade highs.

However, they said the board was unlikely to start cutting "until it has gained greater confidence that inflation is moving sustainably" towards its two percent target.

Boss Jerome Powell said after the gathering that "almost everyone" favoured a step down this year, but added, "I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to cut". 

Ahead of the announcement, market bets on a March cut were about 50-50, and observers said the comments were seen as less dovish than expected.

PGIM Fixed Income's Greg Peters said that while inflation was well down from the four-decade highs seen in 2022, the Fed's work would likely get harder now that more market volatility could be expected.

"Given the underlying strength in the economy, and the ability for labour markets to seemingly shrug off higher interest rates, the Fed remains more focused on its inflation mandate than on the job market," said Tai Hui at JP Morgan Asset Management.

"It does appear that the balance of risks is skewed towards inflation remaining sticky rather than the economy falling into recession."

After a broadly disappointing January for the region's markets, the news meant February got off to an inauspicious start with Tokyo, Shanghai, Sydney, Singapore, Taipei, Manila and Jakarta all down.

Hong Kong rose after tanking more than 3% in the previous two days, while Seoul and Wellington were also up.

"Interest rates took the elevator going up -- but are going to take the stairs coming down," said Greg McBride of Bankrate.

"The Federal Reserve is getting closer to the first interest rate cut, but we're not there yet."

Christian Scherrmann at DWS expected the Fed to guide its plans at the March meeting and foresaw a reduction in the second quarter.

Investors are now awaiting the release of closely watched US jobs data on Friday, which will give a fresh idea about the state of the world's top economy. That comes after payroll firm ADP said the private sector created fewer posts than expected last month.

Apple, Amazon and Facebook owner Meta are also due to report over the next couple of days. 

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