Markets across Asia experienced a stumble on Thursday, failing to maintain an early rally spurred by growing expectations of another interest rate cut from the US Federal Reserve. The mixed performance came even as fresh economic data from the United States reinforced the view that the central bank will act next week.
Data Fuels Fed Cut Expectations, But Caution Prevails
The probability of a US rate reduction on December 11 has surged to approximately 90% in recent weeks. This shift followed comments from several Fed officials who signaled that supporting employment is currently a higher priority than combating elevated inflation. The argument for further monetary easing gained more traction on Wednesday with the release of a disappointing jobs report.
Payroll firm ADP revealed that the US private sector lost 32,000 jobs in November, a stark contrast to the Bloomberg forecast of a 10,000 gain. This marked the largest monthly decline since early 2023. "Hiring has been choppy of late as employers weather cautious consumers and an uncertain macroeconomic environment," noted ADP's chief economist, Nela Richardson.
Analysts interpreted the weak data as a clear signal for the Fed. "Right now, the data argues for additional Fed funds rate cuts. US labor demand is weak, consumer spending is showing early signs of cracking, and upside risks to inflation are fading," wrote Elias Haddad of Brown Brothers Harriman & Co.
Asian Markets Show Divergent Paths
Despite a second day of gains on Wall Street, the positive sentiment did not fully translate across the Pacific. Regional traders moved cautiously, with ongoing concerns about high valuations in the technology sector weighing on sentiment.
The performance was a patchwork across the region. Tokyo's Nikkei 225 was a standout, climbing 1.5% to 50,596.24. Markets in Sydney and Manila also managed to advance. However, this optimism was not widespread. Key financial hubs including Hong Kong, Shanghai, Seoul, Singapore, Wellington, and Taipei all closed in negative territory.
Some market observers remain bullish on the broader trend. Pepperstone's Michael Brown suggested the path continues to point upward, with participants seeking to ride the coattails of the rally higher, particularly with year-end influences at play.
Volatility Warning Amidst the Easing Cycle
While the consensus is that the Federal Reserve will continue its rate-cutting cycle into the new year, analysts caution that the journey may not be smooth. Economists at Bank of America highlighted that the Fed itself remains the most immediate source of potential volatility.
They warned that while the direction of policy is towards easing, uncertainty around the timing persists. Any perceived delay in future rate cuts could unsettle markets and trigger fresh swings in asset prices, reminding investors that the road ahead requires careful navigation.
Key market figures as of around 0230 GMT on Thursday included:
- Hong Kong's Hang Seng Index: DOWN 0.3% at 25,687.40
- Shanghai Composite: DOWN 0.4% at 3,846.39
- Dollar/Yen: UP at 155.37 yen from 155.23
- New York's Dow Jones: UP 0.9% at 47,882.90 (previous close)
- London's FTSE 100: DOWN 0.1% at 9,692.07 (previous close)
